Why budgeting comes first
Every other step on the route, from building savings to investing, depends on having money left over at the end of the month. A budget is how you make that happen. It isn't about cutting out everything you enjoy. It's about deciding where your money goes, rather than wondering where it went.
Step 1: Work out what comes in
Start with your take-home pay. This is the amount that reaches your bank account after tax, National Insurance, pension contributions and any student loan repayments. Add any other regular income, such as a second job. Not sure what each line on your payslip means? Read understanding your payslip.
If your income changes from month to month, base your budget on a typical lower month. That way, it still works when money is tight.
Step 2: Work out what goes out
Look back over the last two or three months of bank statements and sort your spending into three groups:
- Essentials: rent or mortgage, bills, Council Tax, food shopping, travel to work and minimum debt repayments.
- Lifestyle: eating out, subscriptions, clothes, holidays and nights out.
- Irregular costs: things that don't come up every month, such as car insurance, birthdays or a new phone. Divide the yearly cost by 12 to see how much to set aside each month.
Most banking apps sort your spending into categories automatically, which does much of this work for you.
Step 3: Choose a method that suits you
There's no single right way to budget. These three methods are popular because they're simple:
- 50/30/20: spend around 50% of your take-home pay on needs, 30% on wants and 20% on saving, investing or paying off debt. Treat these as a starting point. If you live somewhere with high rents, needs often take a bigger share.
- Pay yourself first: move a set amount into savings on payday, then spend what's left without tracking every purchase.
- Pots: split your money into separate pots for bills, spending and saving. Many banking apps let you do this.
The best method is the one you'll actually stick with.
- Needs (50%)£1,000
- Wants (30%)£600
- Saving and debt (20%)£400
Step 4: Find room to save
If there's little or nothing left over, look for easy wins first:
- Cancel subscriptions you no longer use.
- Compare your energy, broadband, mobile and insurance deals when they come up for renewal.
- Check small, regular purchases. A few pounds a day can add up to more than £100 a month.
Even £25 a month is a good start. At first, the habit matters more than the amount.
Step 5: Review it each month
Set aside ten minutes each month to compare what you planned with what you spent, and adjust your budget if your circumstances change. When your pay rises, consider saving part of the increase before you get used to spending it.
Common questions
Do I need a spreadsheet to budget?
No. For most people, a banking app that sorts spending into categories is enough. Some people prefer a spreadsheet because it gives them more control, but it isn't essential.
What if I have nothing left over at the end of the month?
Focus on your essentials and any debts first. If you're struggling to pay bills or keep up with debts, you can get free, confidential help from MoneyHelper, StepChange Debt Charity or Citizens Advice.
How much should I save each month?
There's no single right amount. The 50/30/20 method suggests 20% of your take-home pay for saving and paying off debt, but any regular amount helps you build the habit.
Sources
We checked this guide against these sources on 8 October 2026. Rules and allowances can change, so always check the latest position on GOV.UK.
This guide is general information, not personal financial advice. Read our full disclaimer.