How to budget (and actually stick to it!)

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A budget sets out how much money you expect to get and spend over a certain period of time. The aim is to see if your income can cover your expenses – and if so, how much you’ll have left over.

Budgeting can help you:

  • Stretch your money – no more being broke at the end of the month

  • Make better decisions – you’ll know when to treat yourself and when not to

  • Reach financial goals – like paying off debt or saving for a house, wedding or retirement

  • Spot issues quicker – like missed payments or identity fraud

  • Feel calmer – you may have to make some tough decisions at first, but budgeting can help you feel more in control

We’ll show you how to create a simple budget in three steps. You’ll need:

  • A spreadsheet or an app that helps you budget (like Monzo!)

  • Recent information about your finances (like bank statements, payslips and bills)

We’ll focus on creating a monthly budget, but you can adjust it to be yearly, weekly or daily if you like.

Budget your income

You need to know how much money you have to play with each month. This is straightforward if you have a regular salary – just make sure to use the net pay figure on your payslip, as this is what you take home after tax.

Other sources of income may include:

  • Freelance fees

  • Tips, bonuses and commission

  • Government benefits, like jobseeker’s allowance

  • Student loan or grant

  • Interest earned on savings

  • Dividends (money you get for owning shares in a company)

  • Capital gains (money from selling something valuable, like property)

Does the amount you earn change each month? If so, try calculating a minimum monthly income to use in your budget. Or – if you have a financial buffer – you could use an average monthly income.

Some of your income may be paid annually rather than monthly. You may want to leave this out of your monthly budget until the money’s in your account.

Budget your expenses

Next, you need to know how much money you spend each month. It’s useful to split your expenses into two categories:

Fixed expenses – these are things like rent and subscriptions, where you already know what you’ll have to pay. You can get an idea of your fixed expenses by looking at bills, Direct Debits or the Summary tab of your Monzo app.

Variable expenses – these are things like groceries and going out, where the amount can change from month to month. It’s useful to record them in subcategories, e.g. eating out, transport and holidays. If you use Monzo, we’ll work this out for you. Just download the app to get started.

You may need to pay some expenses annually or quarterly, like car insurance or bills. You might want to work this into your monthly budget by putting aside part of the cost every month.

Compare income and expenses

It’s the moment of truth: does your income cover your expenses? Simply subtract your total monthly expenses from your total monthly income to find out.

Here’s a simple example:

BreakdownTotal
Monthly incomeSalary – £1,500£1,500
Monthly expensesFixed
Rent – £850
Insurance – £30
Water bill – £10
Netflix subscription – £8
Gym membership – £15
Variable
Groceries – £150
Travel – £200
Electricity bill – £15
Eating out – £120
Entertainment – £80
Shopping – £60
£1,523
Difference-£23

A negative number means you need to spend less or earn more. This is called balancing your budget. In the example above, you could reduce spending in one of the variable categories – or you might choose to cancel non-essential fixed expenses, like your Netflix subscription or gym membership.

If you’re left with a positive number, that’s a great start. You may want to adjust your spending anyway if you’re working towards financial goals like paying off debt or saving up.
Remember, it’s always good to leave a little extra in the bank for unexpected expenses and emergencies. This helps make sure you don’t miss a payment or go into an unarranged overdraft.

Review your budget regularly

No matter how well you plan, budgets only work if you stick to them! Keep an eye on your spending and compare it to your budget regularly. You can use Monzo to set a spending budget to keep yourself in check.

Remember, it can take a few tries to create a budget that works for you. Make sure to revisit your budget after big financial changes too, like getting a promotion or moving in with a partner.


To keep track of your spending and budget better, download Monzo today!