Oct 09

How to Create a Budget

If you’re feeling the pinch, and struggling not to spend more than you earn, then it’s time to get to grips with your household finances. By far the best tool for the job is a watertight monthly budget, and this MoneyMagpie guide will show you how to do a budget and cut your expenses.


Make your own budget

Woman working out a budget

First things first: find out what you’re actually spending money on. Keeping a spending diary is an excellent way of getting a snapshot of your daily outgoings and seeing where your money’s really going each month. Check out our guide to starting a spending diary.

With a month of diary-keeping under your belt, you’re ready to complete a budget. There are several online budget calculators, but you can make your own. Draw out two columns, one for incomings and one for outgoings.

These are the kind of things you should include in your incomings section:

  • Wages
  • Investments
  • Interest on savings
  • Benefits
  • Tax credits
  • Child maintenance and spousal maintenance
  • Pension

And these are the things you should have in your outgoings section:

  • Mortgage/rent
  • Utility bills
  • Council tax
  • Home phone/internet/TV bill
  • Mobile phone bill
  • Insurance
  • Transport
  • Childcare
  • Food
  • Clothes
  • Entertainment
  • Alcohol/Cigarettes
  • Loans/credit cards
  • Holidays
  • Big one-offs like birthdays and Christmas

Your spending diary will help you complete this, but it’s also worth getting out bank statements to see what you spend on bills and annual expenses like insurance and Christmas. Make sure you include everything – even the little things you think aren’t important, like a coffee or a packet of crisps – it all adds up.

Once you’re done, add it all up and you’ll have an estimate on your monthly outgoings and incomings. If you earn more than you spend – congratulations! We suggest you put the savings into an ISA or high interest savings account to make the most of it.

If you spend more than you earn, don’t worry, you’re not alone! You can bring it back into balance by cutting your expenses. Check your regular direct debits and cancel any that aren’t key to your happiness. Gym memberships, weight-loss programmes, snack deliveries and magazines you don’t read are all good candidates for the chop.


Check your bills

Shocked woman looking at bills

Some areas you simply won’t be able to cut down on – you can’t stop paying your rent, or cut out your council tax for example. However, you can dramatically cut your bills for the essentials.

Here are some ideas to get you started:

  • Switch your energy supplier. You can easily save hundreds of pounds a year this way.
  • Consider energy saving measures, so there’s less to pay for.
  • Next, see if you can save by switching your internet provider.
  • See if you can save money by switching to a water meter, and cutting your water use.
  • Check how much you are paying for media through a TV package and various streaming services. It’s worth keeping a diary of what you actually watch, so you can consider whether you should be cancelling any of your packages.
  • Pay your bills by direct debit – it’s much less hassle and you can often get a discount if you do this.

Check out Jasmine’s advice on reducing your bills here.


Other ways to save

Mobile phone

Woman looking at phone bill

Do you have a contract phone or are you on pay as you go?

If you only use your phone occasionally then it might be worth ditching your contract entirely. Otherwise, why not switch from a phone contract to a sim-only one. This means you won’t get an upgrade each year, but if you switch from a £25 a month contract to a £15 a month one, that’s a tenner each month you can save, and £120 each year. Check out our article on reducing the cost of your smartphone. And then use our mobile phone contract comparison tool here.


Woman on a bus

This is another area that seems to cost a fortune. Here are some ways you can save:

Get a bike – this is an investment. If you don’t already have one find a cheap one on Gumtree, or invest in a nice one, use it to cycle to and from work each day and save yourself a fortune each week. Check if your employer has a bike-to-work scheme, which will help you spread the cost of a new bike – and save you a fortune.

Driving – Try car pooling! Try sites like, which will reduce your carbon footprint and save you an absolute fortune on petrol. If there’s someone going the same way as you, why make the traffic jams longer?

Parking – Don’t resign yourself to paying for pricey car parks. Before you travel anywhere check out sharing economy alternatives like JustPark, where you can pay to park on someone’s drive.

For more ideas, check out our article on alternatives to owning a car.


Woman clothes shopping

The supermarkets use every trick in the book to get you to spend more cash, so use every trick in yours to cut the cost. There are five easy steps which can help you save between 10% and 35% every time you shop.

  1. Start with a meal planner. Decide what you are going to eat, and when, and use this as the basis for your shopping list.
  2. Make a list. Check the cupboards, and list everything you need for your meal planner. Then stick to the list.
  3. Ditch the brands. Supermarket own brands can be half the price, so are worth trying at least once. Even if you only stick with a fraction of them, you’ll save money every time you shop – forever.
  4. Use MySupermarket to compare the prices of your food shop – you can even do your shop online with your chosen supermarket. They’ll keep a running tab on how much your shop costs and if it’s cheaper through another supermarket, you can switch at the click of a button.
  5. Try the discounters. Whether you throw caution to the wind and do the whole shop there, or start with award-winners and basics and go from there, you can easily cut 10% off your shop without noticing.

For more grocery shopping tips, check out our guide to 12 ways to feed your family for less.


Older couple at the cinema

Cutting back on luxuries will be part of making any budget work, but you don’t have to cut them out entirely. There are ways to get a bargain on everything from fashion and high-end beauty, to food and drink, theatre and entertainments. Our guide to having more fun on a budget offers plenty of tips on everything from voucher sites to sample sales.


Family on holiday

Travel is getting extraordinarily expensive. In some cases, the best solution is to cut back on breaks – taking a shorter holiday, or going overseas once every two years.

If you can’t part with regular breaks, you can take these clever steps to save on everything from booking a hotel, to hiring a car.

It also pays to think beyond your usual habits to find cheaper solutions. This may include staycations on campsites, long weekends with friends, or swapping homes for a week through a home-swapping website. Check out our guide on the key habits to change in order to make big savings.


Don’t panic!

Woman looking panicked

Money is tight for everyone and there seems to be an enormous pressure to keep a lifestyle that a lot of people simply cannot afford.

Don’t live your life worrying about what other people think. It takes guts to do it, but you have to be honest with yourself about what you can afford and where you should make cuts. If that means that you have to forgo a two-week summer holiday, or getting your hair styled less often then so be it.


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Anthony Bellasario
Anthony Bellasario

I read about the Latte Factor before and it really is true that all the small things we spend on—like coffee, cigarettes, movies—add up to a surprisingly significant amount than what we had expected. But aside from saving, we should also think of other ways to increase our incoming money.


I am paid every 4 weeks so it makes 13 pay days a year and I get paid on different days aswell through the months, how do work out my average for the month when I start to do a budget as their are 12 months a year and my pay days are not as other people.


I know what that’s like! The best way is to add up all the money you’re paid then divide it by 12. That’s also the way to do it with payments that are quarterly or spread across the year – add them all up and then divide by 12 and you’ll get the average monthly figure.

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