How To Create A Budget And Stick To It [Easy Step By Step]


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Discover how to create a budget that really works for you, PLUS make sure it stays for the long term. This easy to follow guide will help you track your cash.

Lady using a calculator with notes on clipboard in background

Why Do You Need A Budget?

Having a budget is like having a roadmap to help you reach your financial goals. 

Whether you’re saving for something special, or just trying to have some financial security with a realistic spending plan in place, creating and sticking to a budget can help you get there. It allows you to make the most of your money, as well as plan ahead for upcoming expenses.

And, by making a budget for yourself, you can much more easily keep track of where your money is going each month (and keep your credit score good – always a bonus!). 

Lastly, budgeting can also bring peace of mind when it comes to paying bills. 

By making sure that you’re on top of each expense you have, you can drastically reduce the amount of stress that comes with paying bills and debt repayment.

Knowing exactly how much money you have coming in and out will help keep your finances organised and worry-free.

Sounds good, doesn’t it!

So – how do you make a budget that works for you really well?

Let’s take a look…

How To Create A Budget – Step By Step Guide

If budgeting isn’t something you have done before, it can be difficult to know where to start. 

That’s why it helps to have a plan of action – as this ensures you can stay on track easily. 

So whether you’re just starting out or have been budgeting for years, follow these steps and you’ll work out the right budget for you to be able to manage your money in the most effective way. 

Happy budgeting!

Step 1 – Know Your Goal(s)

One of the key elements in successful budgeting is setting goals and assessing exactly what you need from your cash.

A financial goal can be short-term, such as a savings goal for a holiday, or longer-term like retirement.

By having a realistic goal / goals in mind from the start it will make it easier to allocate funds and track your progress.

What Do You Need In Reserve?

It’s important to plan for emergencies or any unexpected expense that may crop up.

Setting aside a portion of your budget as an emergency fund will help you stay on top of your finances if something unexpected arises.

A good example of this is to know what you need each month to live, and to have a certain number of months money saved and ready for if you should ever need it.

Are You Saving For Something Specific?

It’s a great idea to set aside some of your income each month as savings.

Whether it’s for something special, or just to have a financial cushion, allocating funds towards savings can help you reach your goals faster.

Step 2 – Know Your Monthly Income

Once you have your goals in mind, the next step is to figure out how much money you’re bringing in each month.

This will then help you to see what you’ve got to work it.

Begin by listing your regular income from all sources, such as salary or investments. 

NOTE: Remember to work with your net income (how much money you take home each month after any deductions you may face, for example in taxes or your pension) because you’ll be working with the right money (what you take home rather than what you earn).

Then add in any other money you receive or are due to receive:

  • Tax refund
  • Investments
  • Dividends
  • Bonus
  • Rent from other property

By the end of this step you should have a definitive list of all that you bring in each month.

Step 3 – Know Your Outgoings

Equally important to understand is what you spend.

Again, you need to know your current situation, and exactly what you’re spending now. This will help you figure out a more realistic budget as it will be based on actual rather than guess work.

Use your bank statement and any paperwork from your household bills to guide you – and start by breaking down your fixed expenses into categories such as rent and utility bills (plus any loan amount you’re currently paying off).

Next – work out the average monthly expense for your other outgoings such as food and entertainment.

Lastly – think about those non-regular costs such as holidays or gifts. It’s worth having an idea of the total you spend each year on these, and then working out the average monthly requirement for each of them. Making sure you cover these as well means that these expenses don’t come as a shock later on.

Make Saving An IMPORTANT Outgoing

Don’t leave savings until last when it comes to creating a budget – because saving for unexpected expenses, and for the future, is a budgeting method that’s vital for financial success.

Step 4 – Analyse The Numbers

Once you have all the information listed, it’s time to draw up a budget.

The goal is to balance your income with your expenses, so that (ideally) you have enough extra money left over each month for general spending.

Take a look and see whether your expenses are larger or smaller than your income.

Expenses Are Smaller Than Income

You’re living within your means. Yay you!

Write everything down and that’s your budget. It’s working for you as it stands right now, and you can carry on as normal.

Expenses Are Larger Than Income

If there’s not enough money left to cover your expenses, you’ll need to look at ways to either reduce your spending or increase your income (or both) to make it work.

Take some time to tweak things:

  • Consider what’s really crucial (and make sure you’re on the best deal for each of these things), and try and reduce the ‘nice to haves’ and any unnecessary spending as much as possible.
  • See where you can increase your income – a raise, more hours, a new job etc…

Once you’ve been able to balance things out so that the expenses are smaller than your income – that’s your new budget.

Lady using a calculator with notes on clipboard in background

How To Manage A Budget

Well done you for getting this far. Hopefully you’ve found a budget that works for you and your life.

Now, it’s all very well and good creating a budget, but it shouldn’t end there…

To get it to work well, you also need to focus regularly on maintaining it – and actually follow it for the long term.

Managing a budget is crucial for it to be an asset to you rather than just something you created a while ago that doesn’t mean a lot to you anymore. It’s not just an exercise – it’s a tool.

Here are the things to keep in mind to make sure you manage your budget well.

#1 – Create Separate Accounts For Easy Management

When you make things easy to manage, you’re more likely to stick with it for the long term.

For example:

A good idea is to have separate accounts for different things.

Your incomings could all go into a main bank account each month, and any bills could be paid out of that as well (set these up as direct debits so they’re automatic and then you won’t run the risk of paying late fees).

Then, also set up a couple of extra bank accounts.

Firstly – a savings account. You’ll move your budgeted amount from your main account to this account after you get paid each month – automatically.

Secondly – a spending account. This will be again for a budgeted amount that you know you can afford to spend on whatever you want each month. Again it will be taken from your main account after you get paid.

Having a separate account for spending money will ensure that you know what you have for shopping on the things you’d like each month, and exactly how much you’ve got for the more impulse purchases. It will also stop you from spending that which is needed for the bills.

Use it for things like a coffee, a snack when out and about, that outfit you’ve been wanting for a while, a magazine or book etc…

Even if it’s just a fiver a month – that’s yours to enjoy, safe in the knowledge that everything else is accounted for.

Related: Why You Should Use Multiple Bank Accounts To Budget

#2 – Regularly Update In Line With Your Life

Don’t forget to review your budget periodically to make sure it still makes sense for your situation.

Things like wage increases or changes in spending habits may need to be adjusted over time so that your budget remains valid.

I recommend doing this at least once a year, or whenever you have a big life change (new baby, new job, new home etc…).

#3 – Track Your Spending

You need to know what you’re spending is constantly falling in line with the budget you’ve set, otherwise you’ll end up in trouble at some point in the future.

This can be done manually, using spreadsheets or just a pen and paper, or with apps specifically designed for budgeting.

This will help you to keep an eye on where your money’s going and ensure that it’s being used in the way that you intended.


Don’t forget that prices of things can rise and fall (usually rise, unfortunately) – and so it’s important to check that you’re getting the best deal you can for things you pay for.

Often a phone call to your supplier can unlock extra savings or extra benefits – or you can move to a new supplier and access these there.

Related: 80 Easy Ways To Save Money At Home [& Still Have Fun]

Check Your Bills

A while back I found that I’d been paying for a maintenance charge for a dishwasher that was in the house of the house I lived in 5 years ago…

I hadn’t noticed because I also had the same charge going out for my current homes dishwasher – and so when I’d glanced at my account, I’d assumed each payment was correct and for the existing one.

Lesson learned!

Now – I make sure that I go through my account every few months to ensure that nothing like this happens again.

I advise you do this too.

Lady using a calculator with notes on clipboard in background, and title overlaid of how to create a budget and stick to it

Budgeting is something everyone struggles with, especially when it comes to sticking to it properly.

It’s very easy to overspend, but with a thorough plan you should be able to create a budget that works for you, and be able to stick with it easily.

I hope this article will help you to stay on track with your money. Good luck with making your budget!

Read Next: Free Printable Monthly Budget Worksheet PDF (A4 and Letter)


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This article was written by Chrissy

Hi - I'm Chrissy... Having run my own business for 12 years as a Professional Organiser and Interior Designer, I know what works (and what doesn't!) when it comes to setting up a home that works both functionally and aesthetically. Now you can mostly find me in a coffee shop or at home, working full time on (which I setup back in 2011) sharing all my tips and ideas. My mission is to help you create a home that you love to live in every day...


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