How to create a monthly budget

However much money you have, making a budget is the first step towards taking control of your finances, and building a secure foundation for the future.

Step 1: Work out your income and expenditure

  • Calculate your total monthly household income by adding up your wages and any benefits or tax credits you receive. Include your partner if you want to get a picture of your combined finances.
  • Add up the amount you spend per month on essentials like rent or mortgage payments, utility bills and food.
  • Subtract your essential spending from your monthly income, and you'll be left with your disposable income.

This should give you a clear picture of your day-to-day finances, so you can plan where to go from here.

Step 2: Set your goals

Once you know what your goals are, you can work out how to reach them.

Step 3: Set your limits

  • Decide how much money you want to put towards your goals each month.
  • Compare this figure with your disposable income.
  • Divide your spending into categories, such as "clothes", "eating out" and look for areas where you can make changes.
  • Set yourself a spending limit in each category, to free up enough spare cash to put towards your goals.

Remember to budget for the things you enjoy – a budget that's too strict will never work!

Step 4: Keep track

  • Check up on your spending regularly to make sure you're on-budget.
  • If you find that your budget is too tight in some areas or too slack in others, make adjustments as you go.
  • Use the spare cash you've freed up to work towards the things you want. You could make this easier by setting up a monthly direct debit into your savings account.
  • Reassess your budget and goals every so often to make sure your strategy still works for you.

Making a budget and putting it into action is the first step towards taking control of your finances. When you're ready, visit our Growing section to find out how you can make your money work harder for you.

Last updated: 04 June 2015