How to create a budget

Three stacks of coins, two pennies, twenty pennies and pound coins, with a calculator next to them ready to create a budget.
A guide to help you create a budget that works for you. 

Whether you’re struggling with problem debt or not, creating a budget is the first step to taking control of your finances. A balanced budget will help give you a clear picture of how much money you have coming in each month, what you’re spending and where you’re spending it. It can also help you with saving for the future. 

Use our free resources including three steps to building a budget and budget worksheet to help you get on track.

What is budgeting?

Budgeting is keeping track of your money. You’ll know what’s coming in and out of your account during a set time period and work out how much you can spend and on what. Budgets are usually from month to month but you could also have a weekly budget if that works best for you.

Why is budgeting important?

Budgeting is important because whether you’re struggling with problem debt or not, creating a budget is the first step to taking control of your finances. Learning how to create a budget will help give you a clear picture of how much money you have coming in each month, what you’re spending and where you’re spending it. It can also help you with:

  • Saving for the future

  • Dealing with unexpected costs

  • Taking control of debt and avoiding further debt 

How to budget better

Have you tried budgeting before and it hasn’t worked for you? Don’t give up. Read our tried and tested technique below to learn how to budget better.

Free resources to help you build a budget

Before you get started, here are two free downloadable resources to help you create your budget.

Three steps to building a budget

Download your free three-step guide to building a budget that works for you.

Download Three steps to building a budget’

Budget worksheet

Download your own personal budget worksheet to have an in-depth look at your finances.

Download the budget worksheet

How to budget money

Three steps to creating a budget

  1. Start with your income. How much money do you have coming in?

  2. What’s your expenditure? How much are you spending and what are you spending it on?

  3. Balance your budget. Work out if you’re spending more than you have coming in and see where you could make changes.


It can be helpful to use a spreadsheet tool on your phone or computer to keep track of all your information. Why not download the one above for free?

1. Start with your income

Write down how much money you have coming in each month, including:

  • Wages

  • Benefits

  • Pensions

  • Gifts from friends and family

  • Income from lodgers/property/non-dependents

You might want to look at past bank statements to help with this. Remember to include any one-off income that you might receive over the course of a year, but not necessarily every month. For irregular income, work out how much you receive in a year and divide it by twelve to get the monthly amount.

2. What’s your expenditure?

Next, you need to figure out what you spend your money on. Go through your bank statements and break down your spending into categories:

  • Home costs, such as rent/​mortgage payments, household bills such as gas, electricity, water, broadband and building/​contents insurance.

  • Living costs, such as food, clothing, health care and phone.

  • Travel and vehicle expenses, including fuel, maintenance such as your annual MOT and repairs, road tax and insurance, and other transport costs.

  • Costs related to family and pets, such as vet bills, pet insurance, childcare, pocket money and school trips.

  • Leisure, including meals out, hobbies and subscriptions.

  • Future needs, such as birthdays, Christmas, holidays, home improvements, pension, investments and life insurance.

  • Insurance such as buildings or contents insurance, life insurance, appliance insurance, car insurance or pet insurance.

  • Giving, such as charitable donations.

  • Debt repayments, including personal loans and hire purchases.

Again, remember to think about your expenditure across the whole year. Christmas, for example, only comes round once a year but can be an expensive time, and so it’s important to factor it into your monthly budget. Divide the amount you spend by twelve to get a monthly amount (e.g. if you spend £200 on Christmas, then you would need to save about £16.75 per month).


Multiply weekly expenses by 4.33 to get a monthly total.

3. How to stick to a budget

Knowing where your money is going is a great start, but balancing your budget is the most important part of this process. With all your expenditure totted up, is it more than your total income?

If so, there are a few things you can do to balance your budget.

Needs and wants

Look back over the things you listed in your expenditure. Colour code anything that is a want’ in one colour and anything that is a need’ in another colour. Needs’ are things you realistically can’t live without, such as food and paying your rent. Wants’ are things that you enjoy but aren’t essential, such as meals out or TV streaming subscriptions.

Are there any areas where you could cut costs, cut back or cut out?

  • Cut costs means finding a way to do something cheaper, such as switching to a different internet provider or trying different brands of a product in the supermarket.

  • Cut back means doing something less, such as taking a packed lunch to work rather than buying lunch out.

  • Cut out means getting rid of something altogether, such as cancelling memberships and subscriptions that you no longer use.

This isn’t about cutting out all the things that bring you joy. It’s okay to compromise so that you can still have a few luxuries. What’s most important is being honest with yourself about what you can realistically achieve with your money.

Increasing your income

Although it may not be easy, it’s worth considering if you could increase your income to help balance your budget. This might look like:

  • Working extra hours, or seeing if someone else in your household can do so.

  • Making sure you’re receiving all the benefits you’re entitled to (use a benefits calculator to help you with this).

  • Asking grown-up children who still live at home to contribute to household costs.

  • Renting out a spare room to a lodger (make sure you check the terms and conditions of your accommodation before you do this).

  • Renting out a parking space or driveway.

  • Selling things you no longer need, such as old clothes or jewellery.

  • Trying to arrange child maintenance if you’re a single parent not currently receiving it.

Get free, expert support in your local community

The information on this page is taken from our money coaching workshops. The course is run in partnership with local churches across the UK and is designed to help people take control of their money through practical financial education and holistic support tailored to their individual needs. First launched in 2008, money coaching has helped thousands of people to budget, save and spend better.

More helpful resources

Money Helper’s Budget Planner lets you build your budget step-by-step, and you can save it to access whenever you want.

Turn2Us lets you check your benefit entitlement and find out what other financial advice and support is available.

Websites such as Martin Lewis’ Money Saving Expert offer lots of tips and tricks for cutting costs and saving money in your everyday life.

What if I can’t balance my budget?

During the cost of living crisis, it might not be possible to balance your budget. Rising mortgage, rent, fuel, gas and electricity and food bills mean that making it to the end of the month without running out of money could get more and more unlikely. If you’re struggling, look at our cost of living crisis resources and find out what extra help could be available to you.

You could be also entitled to benefits you don’t know about. Use the free Turn2us benefits calculator to check if you’re missing out on important financial support.