Saving made simple: Make a budget
Whatever your financial goal – to increase the amount you put away each month, make your pension go further or simply understand where you stand with your money – there’s one thing that’s certain to get you closer: a budget.
Can you get where you want to go without one? Of course. Similarly, you can run a marathon with your eyes closed, but only if you like doing things the hard way. As with anything you want to achieve in life, it’s simple good sense to equip yourself with all the information.
Here’s how to get it right.
- Set aside some time
You probably know already that you need a budget, but getting around to it can feel difficult. Making an effective budget does take some time and effort to start with, but once it’s done it’s easy to maintain and can free your mind.
So find a slot in your diary, block it out and get ready. If you’re budgeting with a spouse or partner, agree a time together. You’ll need, say, three months of bank statements, credit card statements or receipts and your chosen budgeting tool. That might be an app, a spreadsheet or simply pen and paper.
- Identify your categories
Your budget can be as detailed or as big picture as you like. If you’re unsure what will work, keep it broad-brush to start with. The important thing is to separate out spending on essentials – housing costs, bills, travel to work, for example – from discretionary spending. We can think of this as ‘needs’ versus ‘wants’.
Go through your statements or receipts and note down what you’re spending in each category. You might find you need to tweak the categories to capture everything in a way that feels right for you.
Don’t forget the big spends. Many people stick to a budget for 11 months of the year and then fall down badly at Christmas or on their summer holiday. To avoid this trap, make sure you factor in these costs.
Something else that can throw you off course is when things go wrong – burst pipes or a broken boiler. You should aim to have money set aside in an emergency fund for such occasions, but it’s sensible to budget for them too so you can top that fund up as needed.
- Review your spending
Once you’ve identified what you’re spending in each category, it’s time to review. Overall, are you living within your means or spending more than you earn, or more than you would like to? If you’re overspending, can you see where the money is leaking away?
The priority, of course, is to protect your needs, so have a look at your wants and see what you can live without. You can also review your needs and ensure you’re taking advantage of any cost savings. For example, would it pay to switch energy suppliers? If you commute to work, are any travelcards or discounts available?
- Set spending goals
For each category, set an amount you’d ideally spend. Try to be realistic: sure, you can cut back on eating out, but if it’s your preferred way of spending time with friends, perhaps you don’t want to give it up entirely. Could you instead budget for fewer meals, or aim to eat at less costly places? If you need to be well-presented for work, you might be able to trim your clothing spend, but not slash it in half.
Your budget needs to be something you’ll stick to, so the key is to find a balance. Think about what you really value, versus the spending you do automatically or absent-mindedly, without much pleasure.
- Check in regularly
Your budget isn’t a one-and-done – you need to review it regularly. Again, it helps to schedule this. Perhaps you could check in on the sofa with a glass of wine on a Sunday night, or in your lunchbreak on the first Monday of every month. If you’re budgeting as a couple, agree a time that works for you both and hold each other to it.
Don’t expect to have got your budget right first time. You’ll need to tweak it, particularly in the early months, as you discover things you’ve forgotten and find out what’s working or not working.
Nor can you expect the budget you set now to last for the long term: your life circumstances, goals and priorities will change. That makes it even more important to keep checking back in to keep yourself on track.
6 March 2025