A beginner's guide to making a budget

2 March 2022
3 minute read
A beginner’s guide to making a budget

A budget is the tool you need to take control of your finances, and it is your first line of defence against overspending. And once you have it all down in black and white in front of you, you’ll find that it is easier to plan for the future and start saving money.

Given that a budget can help you achieve all these great outcomes, it’s a wonder that more people don’t draw one up every month. But the sad truth is that while budgets are incredibly simple to understand and create, a lot of people simply don’t know how. To help you get in on the budgeting magic, here is a step-by-step guide to making one of your own.

1. Write down your income

If you earn a regular salary, you should have a clear idea of the amount that gets paid into your bank account (after deductions, like PAYE tax) at the end of every month. If your income varies from month to month, look at a year’s worth of bank statements and work out your monthly average by adding together each month’s income, and dividing the total by 12.

If you have any other income, for instance rent from a cottage or a room you let out, or a monthly maintenance payment from an ex-spouse, include that.

Write that figure down as a starting point.

2. Write down your fixed expenses

Every month, there are certain expenses that don’t change. These could include:

  • Rent or a bond repayment
  • Utilities bills
  • Insurance policies and funeral cover 
  • Domestic worker salary
  • School fees
  • Streaming services, for example Netflix
  • Savings

3. Write down your variable expenses

Variable expenses are a bit more difficult to track because they change each month. These might include:

  • Transport
  • Food
  • Phone bill
  • Entertainment
  • Small day-to-day expenses like work lunch or beverages
  • Clothes
  • Emergency expenses like home or car repairs
  • School trips or supplies
  • Debt repayments
  • Family support  

Write down an estimate in each category, but then spend the next few months tracking your spending. Just make a note of everything you spend (be honest with yourself). Then adjust the expenses in your budget accordingly.

4. Work out your disposable income

Add together your fixed and variable expenses to give you your total expenses, and then subtract your total expenses from your total take-home income. The figure you end up with is your disposable income. The bigger this amount is, the better, but most people tend to spend their whole salaries and have very little disposable income.

5. Reconsider your expenses and work out where you could cut back

If you are struggling to make ends meet, use your budget to work out where you could spend less. Perhaps you can find a cheaper streaming service. Or perhaps you could find a friend to give you a lift to work so you don’t have to spend as much money on transport. Maybe your work lunches and drinks are costing you more than you thought and you could be more disciplined about bringing food from home. By looking at your budget carefully, you can make realistic decisions about what you can and can’t afford to keep doing.

6. Make a plan to save

Budgeting isn’t only about understanding your financial situation. The best outcome of this exercise is that you end up saving money. If you aren’t managing to save a cent, be even more strict with yourself or make greater sacrifices so that you end up putting money away in the bank each month.

The bottom line

Save more, spend less, and take control of your finances. Drawing up a budget is your first step, but there are many more on the road to financial fitness. Good luck on your journey.

Downloadable budget spreadsheet:

We’ve made a budget spreadsheet for you to download and customise to create your own personal budget.

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