How to Create a Budget

Updated On: Jun 12, 2024
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How to Create a Budget

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How to Create a Budget

To create a budget, you’ll need a budgeting app such as Budget by Koody or Snoop, a budget planner spreadsheet or a personal finance software. You’ll also need to set a financial goal, determine your income, and choose a budgeting method.

Follow the steps below to create a budget:

  1. Choose Your Budgeting Tool: You need a budgeting tool to help you create and manage your budget. There are several options you can choose from, including budgeting apps, spreadsheets, and personal finance software.
  2. Set Financial Goals: Establish clear, measurable financial goals, both short-term and long-term. These might include paying off debt, building an emergency fund, saving for a holiday, or investing for retirement. Prioritise your goals to ensure your budget aligns with what’s most important to you. You can write your goals down in your diary or journal or record them in the budgeting tool you choose.
  3. Determine Your Income: Once your goal is set, you need to determine your income. Calculate your total monthly income from all sources, such as salary, investments, or side gigs. Be sure to use your net income (the amount you take home after taxes and deductions) for a more accurate budget. When you have the final figure, input it into your budgeting tool so you can deduct expenses (including savings and investments) from it. It might also be a good idea at this time to determine your net worth.
  4. Choose a Budgeting Method: There are different budgeting methods that you can choose from, such as zero-based budgeting, the 50/30/20 rule, the envelope system, pay yourself first, and value-based budgeting. These methods help you decide how to allocate your income to various spending categories. We go into detail on the different types of budgeting methods below.
  5. Categorise Expenses: Once you’ve chosen a budgeting method, divide your expenses into categories, such as Housing, Utilities, Groceries, Transportation, and Discretionary Spending. This will help you track and manage your spending more effectively. Most budgeting apps and spreadsheets will come with predefined budget categories, so all you have to do is allocate what fraction of your income goes into each category.
  6. Define Your Spending Limits: Based on your chosen budgeting method, define your spending limits for each expense category and allocate your income accordingly. For example, if you are creating a budget for essentials, say Rent, Groceries, and Savings only, and your total income or budget for the month is £1,500, you can set your spending limits for Rent, Groceries and Savings as £1,000, £300, and £200 respectively, depending on your needs. When defining your spending limits, be sure to include allocations for your financial goals, such as savings or debt repayment.
  7. Track Spending: Record and monitor your expenses regularly, either manually or using a budgeting app. This will help you identify any spending habits that need adjusting and ensure you stay on track with your budget. Most budgeting apps allow you to either log your expenses manually or connect to your bank account and import your spending data into the app. As you record your expenses in the budgeting tool, they are automatically deducted from your income or total budget, showing you a true picture of your finances.
  8. Review and Adjust: Periodically review your budget and make adjustments as needed. Your financial situation and goals may change over time, so it is essential to keep your budget up-to-date and relevant.
  9. Stay Committed: Stick to your budget and stay committed to your financial goals. Budgeting can be difficult, especially if you are not meeting your financial goals. Don’t be too hard on yourself. Stay focused and committed, celebrate your progress and milestones, and remember that maintaining a budget is an ongoing process.

Best Budget Planner Apps in the UK

We’ve compiled a list of the best budget planner apps in the UK. These are money management apps that help you track your spending, categorise your expenses, organise your money, and identify wasteful subscriptions, manually or via a new technology called open banking.

Open banking budget planner apps allow you to connect your bank accounts to see all your transactions in one place, while manual budget planner apps provide a platform to input your transactions so you can see them all in one place.

The budget planner apps listed below are available to download on Android and iOS. The open banking budget planner apps are registered with the UK’s financial watchdog, the Financial Conduct Authority (FCA).

Here are the best budget planner apps in the UK:

Budget by Koody - Spending tracker; Budget Planner; Categorisation

Koody logo in blue
Cost
£0 - £1 per month
Red cross mark indicating no
Connect Bank Accounts
Availability
iOS and Android

Budget by Koody is a manual money management and budgeting app that offers a simple and personalised approach to keeping you on track with your finances, giving you complete control to account for your expenses and monitor your spending habits over time. It is a budgeting app that does not require you to link your bank account or share any sensitive data, so you can rest easy knowing that the money in your account is untouched, safe and secure.

Budget by Koody is an excellent choice for those who want to enjoy all the benefits of a modern budgeting app without connecting their bank accounts. You can set budgets, track spending, categorise expenses and keep track of your cash transactions and your current, savings, investment, pension, credit and crypto accounts, all without linking your accounts. Budget by Koody will also give you a continually updated overview of your monthly spending, with a reminder of your upcoming expenses, total monthly budget and daily spending limit to keep you within your budget. Budget by Koody also lets you budget in your preferred currency. You will have the option to budget in £, $ or € for a more accurate picture of your transactions according to where you are in the world. Budget by Koody is available on iOS and Android.

Budget by Koody is completely free to use. However, if you want to access more advanced features within the app, you can subscribe to Budget by Koody Pro for £1 per month or £10 per year (two months free).

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PocketSmith - Historical reporting; Spending control; Projections

PocketSmith logo
Cost
£9.99 - £26.66 per month
(Billed annually)
Green check mark indicating yes
Connect Bank Accounts
Availability
Desktop, iOS, and Android

PocketSmith is a robust personal finance software and budgeting tool that empowers you to forge your own financial path, providing the tools you need along the way. Connecting all of your bank accounts, investment accounts, and even multi-currency accounts, PocketSmith paints a complete picture of your finances. If you’re tracking cash expenses or other accounts that aren’t digital, that’s not a problem. PocketSmith lets you add these manually to ensure every penny is accounted for.

With powerful historical reporting, you gain a clear understanding of your past spending habits. By analysing these trends, you can make informed decisions and positive changes for better money management. Looking to the future? PocketSmith excels in financial forecasting. It allows you to visualise your finances in six months or even ten years, understanding the impact of your financial decisions on your future. This ability to project far ahead gives you a powerful tool for planning and budgeting, allowing you to forge your own financial path with confidence. But what makes PocketSmith truly shine is its focus on individual needs. Rather than forcing you into a rigid budgeting system, it offers a buffet of features that you can pick and mix from, tailoring your experience to your unique situation. If your needs change, PocketSmith changes with you, offering a flexible solution for every stage of your financial journey.

PocketSmith is available on desktop, iOS, and Android devices. It also has bank feeds for 49 countries, making it an ideal choice for users around the globe. PocketSmith offers four subscription plans – Basic, Foundation, Flourish, and Fortune – catering to casual budgeters and power users alike. The Basic version of PocketSmith, perfect for casual budgeters, is free forever. PocketSmith Foundation costs £14.95 per month (or £9.99 if billed annually), offering automatic bank feeds, unlimited budgets, and financial projections for up to 10 years. Flourish costs £24.95 (or £16.66 if billed annually), offering everything in Foundation, longer projections, and more bank connections. Finally, Fortune costs £39.95 per month (or £26.66 if billed annually), offering unlimited accounts and 60 years of financial projection.

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Snoop - Spending analytics; Switching deals; Discount code finder

Snoop logo
Cost
£0 - £3.99 per month
Green check mark indicating yes
Connect Bank Accounts
Availability
Desktop, iOS, and Android

Snoop is a budgeting and money management app that allows you to see all your bank accounts together in one place. With Snoop, you can track spending, categorise expenses and receive insights to help reduce bills and cancel unused subscriptions.

Snoop has an exciting money-saving feature that aims to help reduce your household bills. Snoop customers get access to money-saving offers and exclusive deals on broadband, mobile contracts, insurance, credit cards, loans, pensions, mortgages and energy. Snoop has an inbuilt price comparison tool that aims to help you find the best switch and save deals, saving you more money in the long run. Snoop will also help you avoid bank penalty fees, reduce wasteful subscriptions, find vouchers and discounts at the places you shop, track refunds, and spot unexpected price hikes. Customers can also set custom alerts to receive daily balance updates, upcoming bills, and weekly and monthly spending summaries. Additionally, Snoop creates a personalised set of money-saving suggestions, which it shares with you on a daily basis. The Snoop app is available to download on iOS and Android.

The basic version of Snoop is entirely free to use. To access more advanced features such as payday budgeting, unlimited custom categories, unlimited spending and refund alerts, offline accounts, custom spending reports, net worth tracking and spending analysis filtering, you need to subscribe for £3.99 per month. Snoop lets you try out the premium features for seven days free of charge.

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Plum - Automatic budgeting and saving; Analytics; Switching deals

Plum Logo
Cost
£0 - £9.99 per month
Green check mark indicating yes
Connect Bank Accounts
Availability
iOS and Android

Plum is a money management and budgeting app that builds a complete picture of your finances to save you money and help you budget. With Plum, you can connect all your bank accounts and credit cards to see an overview of your finances in one place, analyse your spending, keep track of your money and compare household bills.

Plum automates budgeting, saving and investing. If you sign up for Plum’s Money Maximiser, part of the paid subscription, Plum will transfer idle money from your current account to an interest-bearing savings account. Since the app can predict your weekly spending needs, it will automatically move money from the savings account to your current account weekly to cover your spending. Plum will also send you helpful alerts to help you keep track of your regular bills and payments. It will also let you know if you can save money on your home energy or broadband bills and help you switch to a new supplier where possible. Plum is available on iOS and Android.

It is free to download the Plum app, access the basic budgeting and money management features, set money aside, withdraw as often as you like, and switch your bills with Plum. However, if you are interested in more advanced budgeting features like the Money Maximiser, want to earn interest on your savings or want to put your money to work harder by investing in the stock market, you can subscribe for £2.99 or £4.99 per month (first month free). Plum has a third tier that costs £9.99 per month for those who want to access more investment opportunities.

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Moneyhub - Spending analysis; Payday budgeting; Robust insights

Moneyhub Logo
Cost
£0 - £1.49 per month
Green check mark indicating yes
Connect Bank Accounts
Availability
Desktop, iOS, and Android

Moneyhub is a powerful financial planning and budgeting app that lets you see all your finances in one place. With Moneyhub, you can connect your current, savings, joint, credit, mortgage, crypto, pension and investment accounts and see all your transactions in one place. In situations where your accounts are incompatible with Moneyhub, or you have accounts without any digital presence, such as cash savings kept at home or even a list of properties which you currently track in a notebook, Moneyhub will help you track these manually so that you can have a complete view of your finances.

Moneyhub will also let you create budgets, categorise spending, set and manage financial goals, view spending reminders, and access robust income, spending and investment insights. With Moneyhub, you can match your budgets to your payday, so it is easier to see exactly how much of your salary you are spending each month. Moneyhub also allows you to revisit your employment history to see how many pension schemes you might be a part of through your past employers and view all your pensions in one place. Moneyhub is available on desktop, iOS and Android devices.

When you join Moneyhub, you are immediately given a six-month free trial of the Premium membership. Once the trial is over, you have to subscribe to continue using Moneyhub for £1.49 per month or £14.99 per year (two months free).

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Emma - Spending tracker; Payday budgeting; Net worth calculator

Emma Logo
Cost
£0 - £14.99 per month
Green check mark indicating yes
Connect Bank Accounts
Availability
iOS and Android

Emma is a money management and budgeting app that automatically tracks and categorises your expenses to help set budgets, cancel wasteful subscriptions, and save you money in the long run. With Emma, you can connect your bank accounts and credit cards to view all your finances in one place, giving you a clearer insight into your spending behaviour.

You can also track investments, cryptocurrencies, and pension accounts and view them all in one place. Emma will sync your personal budgets to your pay period and use the ‘Emma reports’ feature to let you know if you are on track or if you need to slow down your spending. With Emma, you can create and manage savings goals, which you can link to your savings account. You can also use the net worth calculator to see your overall financial position and ways to improve. The net worth calculator lets you manually include your assets, such as houses, cars and artworks. Emma has a host of other tools to help you make smarter decisions with your money, such as payments, cashback and commission-free stock trading. Emma is available to download on iOS and Android.

It is free to download and use the basic budgeting features on Emma. However, to access features such as cashback, bank transfers, priority customer support, goal setting, net worth calculation, custom categories, unlimited budgets and smart rules, you need to upgrade to Emma Plus, Pro or Ultimate for £4.99, £9.99 or £14.99 per month, respectively.

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Monzo - Payday budgeting; Bill splitting; Envelope budgeting

Monzo logo
Cost
£0 - £15 per month
Green check mark indicating yes
Connect Bank Accounts
Availability
iOS and Android

Monzo is a UK bank with a budgeting and money management offering. Monzo Bank offers budgeting, interest-bearing savings accounts, short-term interest-free and interest loans, and phone and travel insurance. Monzo’s core budgeting features include connecting all your accounts with Open Banking, categorising your spending, envelope budgeting using Monzo Pots, bill splitting, payday budgeting and rounding up spare change.

With Monzo, you can connect your bank account and credit cards to see all your financial activities in one place. Monzo also allows you to set a custom budget start date that you can align with your payday to make tracking the outgoings from your salary seamless. If you are a fan of the envelope budgeting method, you will find Monzo Pots very useful. Pots are a simple way to put money aside and set it apart from your spending money. The cash in your Pots is separate from your spending money, and you can create Pots for anything, including rent, groceries or holidays. Monzo will also round up your spare change and automatically put it in a Pot of your choice. You can also pay bills directly from your Pots by setting up direct debits, standing orders, or simply making a manual transfer. Monzo’s bill-splitting feature allows you to automate the bill-splitting process with your family and friends and settle them whenever you like. Monzo is available on iOS and Android.

It is free to download and use the basic budgeting features on Monzo. However, to access features such as connecting your other bank accounts, creating custom categories, tracking your credit score, accessing interest-bearing accounts, and using the phone travel insurance features, you have to upgrade to Monzo Plus for £5 per month or Premium for £15 per month.

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Monese - Spending analysis; Expense categorisation; Savings pots

Monese Logo
Cost
£0 - £14.95 per month
Green check mark indicating yes
Connect Bank Accounts
Availability
Desktop, iOS, and Android

Monese is a personal finance and money management app with a host of offerings, including a budgeting tool and expense tracker. With Monese, you can set weekly or monthly budgets, categorise your spending, open separate savings pots, move money around and receive detailed transaction alerts and instant notifications whenever you make a purchase.

Money saving is a particularly big feature on Monese, and customers can save in two ways: savings pots and interest accounts. Savings pots are a great way to put money aside, keeping it separate from your main account, but you do not earn interest on them. You can create pots in multiple currencies and withdraw money from them whenever you like. You can also round up your spare change and save the difference into up to 10 different pots per account. If you are looking for a savings account with interest, Monese has a marketplace where you can choose from several interest-bearing accounts with a wide range of UK banks. These interest accounts have FSCS protection, so you can rest assured that your savings are protected. Monese has other features such as multi-currency accounts, credit and loans, local payments, international transfers, and travel money. Monese is available on iOS and Android.

The budgeting and expense tracking features on Monese are free to use. You also get a free and instant account in GBP, EUR and RON. To access more advanced features like insurance, bill protection and VIP customer support, you can subscribe to the Classic or Premium plans for £5.95 or £14.95 per month, respectively.

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Tools and Resources for Budgeting

In today’s digital age, various tools and resources can help you create and manage your budget more efficiently. Here are some options to consider:

  1. Spreadsheets: Microsoft Excel or Google Sheets can be used to create a custom budget template. Spreadsheets are highly customisable and can be tailored to your specific needs. MoneySavingExpert offers a free budget planner spreadsheet which you can use to keep track of incomings and outgoings.

  1. Budgeting Apps: There are numerous free budgeting apps available in the UK, such as Budget by Koody and Snoop. These apps offer features like expense tracking, goal setting, and automated expense categorisation. Research and choose an app that best fits your needs and preferences.

  1. Personal Finance Software: Personal finance software such as MoneyHelper’s Budget Planner, Citizens Advice’s budgeting software, and PocketSmith are also brilliant for budgeting and expense tracking.

When selecting a budgeting tool, consider factors like cost, ease of use, and compatibility with your financial institutions. Experiment with different options to find the one that works best for you.

Understanding Personal Finance

Personal finance may seem like an intimidating topic but fear not. We’re here to break it down into manageable pieces. At its core, personal finance is all about understanding your income (the money you earn), managing your expenses (the bills and costs you face), and building your savings (a safety net for the unexpected or for achieving your dreams).

Think of your finances as a well-kept garden. Just as a garden requires attention, your finances need care and consideration. The flowers represent your financial goals, like buying a home or retiring comfortably. The weeds symbolise unnecessary expenses that threaten to disrupt your budget.

Now, let’s discuss the three main components of personal finance – income, expenses, and savings – and how they’ll shape your financial garden.

  1. Income: The lifeblood of your financial garden. Your income may come from various sources, such as your salary, investments, or a side hustle. Knowing your total income is essential, as it sets the foundation for your budget.
  2. Expenses: The costs your garden needs to survive, but only in moderation. Expenses encompass all the money you spend, from necessities like rent and groceries to discretionary spending like dining out or enjoying entertainment. Keep a close eye on your expenses so your financial garden remains balanced and healthy.
  3. Savings: The blossoming flowers in your garden and the result of your diligent care. Savings represent the money you set aside for future goals or emergencies. With a well-tended garden, your savings will grow, helping you achieve financial stability and peace of mind.

Now that we’ve covered the basics, it’s time to set some financial goals and begin shaping your budget. In the next section, we’ll explore the importance of budgeting and the benefits it offers on your path to financial success.


Importance of Budgeting

Budgeting is the roadmap that guides you towards financial success. As you embark on this exciting journey, it’s essential to understand why budgeting is so crucial and the benefits it brings. So, let’s get started on discovering the true power of budgeting!

  1. Financial Control: Budgeting provides you with a clear picture of your financial situation. By tracking your income and expenses, you gain insight into your spending habits and can identify areas where you can cut back or make changes. This newfound control allows you to make informed decisions about your money and helps you work towards financial stability.

  1. Achieving Financial Goals: Whether you dream of owning a cosy cottage in the countryside or sending your kids to university without incurring debt, budgeting is the key to achieving your financial goals. By creating a plan and allocating resources, you can prioritise your goals and ensure you’re taking the necessary steps to reach them.

  1. Reducing Stress: Money can be a significant source of stress, but budgeting can help alleviate this burden. With a clear plan in place, you’ll have a better understanding of your financial situation, which can help reduce anxiety related to money management. As you gain control of your finances, you’ll feel more confident and secure in your financial future.

  1. Managing Debt: Budgeting is an effective way to manage and reduce debt. By creating a plan to allocate funds towards debt repayment, you can chip away at your outstanding balances and eventually free yourself from the shackles of debt. Financial freedom awaits!

  1. Building an Emergency Fund: Life has a way of throwing curveballs, and having an emergency fund can be a financial lifesaver. Budgeting enables you to set aside funds for unexpected expenses, like car repairs or medical bills, so you won’t have to rely on credit cards or loans in a pinch.

  1. Encouraging Better Spending Habits: With budgeting, you can pinpoint unnecessary expenses and develop better spending habits. By cutting out frivolous spending, you’ll have more resources available to allocate towards your financial goals.

Now that we’ve explored the importance of budgeting, it’s time to delve into the various budgeting methods available. In the next section, we’ll provide an overview of different budgeting techniques and help you choose the right one for your needs.

Budgeting Methods

Just as there’s no one-size-fits-all approach to fashion, budgeting methods can vary based on individual preferences and circumstances. To help you find the perfect fit, we’ll discuss several popular budgeting techniques and their pros and cons.

  1. Zero-Based Budgeting: The zero-based budgeting method requires you to allocate every pound of your income to specific categories, leaving a zero balance at the end of the month. Zero-based budgeting can be highly effective, as it ensures all your money has a purpose. However, it may be time-consuming and requires a fair amount of discipline to maintain.

  1. 50/30/20 Rule: The 50/30/20 rule is a budgeting approach that recommends allocating 50% of your income to essential expenses (e.g., housing, food, utilities), 30% to discretionary spending (e.g., entertainment, dining out), and 20% to savings and debt repayment. The 50/30/20 rule offers a straightforward framework, making it easy to implement. However, it may not suit everyone’s financial circumstances or priorities. Here’s a simple 50/30/20 budget calculator to give you a better idea of how this method of budgeting works.

  1. Envelope System: The envelope system involves allocating cash to separate envelopes for each expense category. Once the money in an envelope runs out, you can’t spend any more in that category until the next month. This method promotes conscious spending and can be effective in curbing impulse purchases. However, it might not be practical in an increasingly cashless society and may be challenging to manage for individuals with variable incomes.

  1. Pay Yourself First: Pay yourself first is a budgeting technique that prioritises savings by setting aside a predetermined amount or percentage of your income as soon as you receive it. The remaining funds are then used to cover expenses. This method helps ensure you meet your savings goals, but it may require adjustments if unexpected expenses arise or if your income fluctuates.

  1. Value-Based Budgeting: Value-based budgeting focuses on aligning your spending with your values and priorities. You allocate funds to categories that reflect what’s most important to you, which may include financial goals, hobbies, or charitable giving. Value-based budgeting can be highly personalised and motivating, but it may also require more introspection and self-discipline to maintain.

As you review these budgeting methods, consider your financial situation, goals, and preferences. There’s no one “right” method; the best approach is the one that works for you and helps you achieve your financial objectives.


Tips for Staying on Track With Your Budget

Sticking to a budget can be challenging, but with determination and the right strategies, you can stay on track and achieve your financial goals. Here are some tips to help you maintain your budget and overcome common challenges:

  1. Be Realistic: Set achievable goals and create a budget that reflects your actual spending habits. Being too restrictive or overly optimistic can lead to frustration and disappointment.

  1. Track Your Progress: Regularly monitor your spending and compare it to your budget. This will help you identify areas where you need to make adjustments and celebrate your successes.

  1. Plan for Irregular Expenses: Some expenses, like car maintenance or annual insurance premiums, don’t occur monthly. Plan for these irregular expenses by setting aside a portion of your budget each month.

  1. Establish an Emergency Fund: Life is unpredictable, and unexpected expenses can derail your budget. Build an emergency fund to provide a financial cushion for unforeseen events.

  1. Stay Motivated: Remember why you started budgeting in the first place, and keep your financial goals in mind. Celebrate your milestones and progress, and don’t be too hard on yourself if you slip up occasionally.

  1. Adjust as Needed: Your financial situation and priorities may change over time. Be prepared to adjust your budget and goals accordingly.

  1. Seek Support: Share your budgeting journey with friends, family, or online communities. They can provide encouragement, advice, and accountability.

Budgeting is a powerful tool that can transform your financial life, providing you with the control and insight needed to achieve your goals. By understanding the basics of personal finance, exploring different budgeting methods, and committing to a personalised budget plan, you’ll be well on your way to financial success.

Embrace the budgeting journey, remain persistent, and celebrate your accomplishments along the way. With determination and the right approach, you can create a brighter financial future for yourself and your loved ones. Now’s the time to take control of your finances and start budgeting like a pro.


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