Step 1: Creating your budget
There are loads of online budget tools and calculators and most high street banks will have one on their website. Budgets can differ in terms of what information you need to fill in, so it's a good idea to check a few out before deciding which one to use. Some of the best ones include:
- Citizens Advice budget tool
- The Money Advice Service budget planner
- Money Saving Expert budget planner
If you prefer to do some manual number crunching then start thinking about what to include in your budget and write everything down using the categories below:
- Your income: this should include your salary, any benefits you receive, contributions from friends and family. You can also list one-off payments such as tax rebates.
- Your expenses: your general bills and outgoings, priority and non-priority debts and payments
- Your debts: credit card or loan repayments
Top tip! It’s helpful to have pay slips, bank statements and utility bills to hand while you do this.
Step 2: Where does your money go?
To get started, here is a list of the main things to consider when working out where your money goes:
Housing costs: mortgage, rent, mortgage protection insurance, mortgage endowment, life insurance, service charges, house repairs/improvements
Household bills: gas, electricity, water, Council Tax, TV licence, TV and video rental, satellite, internet/broadband, home phone, mobile phone charges, house and contents insurance
General living costs: food shopping, snacks, meals at work, clothes, shoes, toiletries, cleaning products, laundry, pet food, vet bills, pet insurance, prescriptions for yourself (if you have to pay for them)
Employment: pension contributions, tax and national insurance (if you are self-employed), meals and drinks at work
Travel: fuel, motor insurance, road tax, MOT, car/bike repairs, breakdown cover, loan/finance agreement, insurance, public transport, air travel, parking, taxis
Childcare (if you’re a parent): childminder, nursery, activities or playgroups, school dinners, school trips, pocket money
Leisure and entertainment: gym membership, sports classes, hobbies, eating out, holidays, haircuts, beauty treatments, birthday/celebration presents, takeaways, newspapers and magazines, lottery/gambling, music, film, meals out.
Step 3: Identifying savings
Look at how you spend your money and find ways to cut down on non-essential spending. Sometimes we are so used to doing something in a particular way that it's difficult to break habits and approach things differently.
One example could be to switch to a cheaper gas and electricity provider. Make sure you check if there are any exit fees before you do. It's also worth knowing that some energy providers will offer lower tariffs if you are claiming certain benefits.
- If you need to borrow money, read our guide on least risky loans
- Check out our money-saving tips for everyday living costs
- Find out about benefits you may be entitled to if you're on a low income
Updated July 2017, next review due 2018.