You should not put off setting up a budget no matter how daunting it seems. Once you have created a budget it will be a lot easier for you to manage your finances. This means that you should be able to improve your financial situation.

If you are setting up a budget for the first time make sure you allow yourself enough time to do it. It’s important that you do not rush the process. Here are the steps that you need to follow.


Step 1 Know how much income you have when you set up a budget

You should start by working out how much income you have coming in each month. You need to include any regular income such as:

  • Salary
  • Maintenance payments
  • Benefit payments
  • Investment income

Once you know how much money you have, to cover your expenses, you can continue setting up the rest of your budget.


Step 2 Identify your regular fixed expenses

It’s easy for you to identify your monthly expenses that always remain the same. These expenses will include:

  • Mortgage payments
  • Insurance payments
  • Loan repayments
  • Rent payments

You should also aim to include a set amount for savings each month. You should try to make this amount around 10% of your income.

Step 3 Identify expenses that vary each month

Once you have listed your fixed expenses, you need to identify your variable expenses. These expenses are what you spend each month on activities such as:

  • Buying groceries
  • Socialising
  • Buying clothes
  • Paying for entertainment

You have a choice about how much you spend on these activities which is why you should see them as variable. You should include an amount for seasonal expenses, such as Christmas presents. It’s easier if you include an amount each month and put it towards seasonal costs.


Step 4 Compare income with expenditure

Once you have listed your income, and all items of expenditure, you need to compare them with each other. Your expenses should match your income.

If your expenses exceed your income you need to make changes. This is the next step in the process of setting up a budget. If you manage to successfully create a budget where expenses match income, you can skip the next step. You can go straight to making your budget work for you.


Step 5 Dealing with expenses that exceed income

If you find that your expenses exceed your income when you create a budget, you need to take action.

You will normally be able to adjust your variable expenses to balance your budget. You simply need to work out where you can spend less. For instance, you may be able to change your grocery shopping habits.

If you find that your budget still does not balance you need to find a way of reducing your fixed expenses. For instance, you may want to downsize. Alternatively, you can look for another source of income such as a second job.

Step 6 Making your budget work for you

Do not forget that you are creating a budget for a reason. You need to use it to help you manage your finances.

  • Track your expenses against your budget each month. You can use software to do this or simply setup your own spreadsheet.
  • Make sure that you track expenses each day so you know exactly what money you have available.
  • Make adjustments through the month where necessary. For instance, if you have an unexpected expense you can take money from other areas of your budget.

As you start to use your budget you may find that you need to change it slightly. It’s fine for you to do this as a budget is always a working document.

Using the 50/30/20 rule

This is not a step you need to take when creating your budget. It’s a rule that it’s useful to follow once you have your budget in place. The 50/30/20 rule states that you should:

  • Spend no more than 50% of your income on needs. Needs include expenses such as mortgage payments.
  • Spend no more than 30% of your income on wants. Wants include items that are basic niceties such as cable TV or an unlimited phone package.
  • Spend at least 20% of your income paying off debts or paying into savings.

Hopefully, you are no longer worried about setting up a budget. Get started today and you can take hold of your finances and make changes when necessary.

If you need a short term loan from a top lender please visit us at for your Free, No obligation quote. does not perform any credit search or check on our customers at application. 

If you are considering a loan please make sure you can afford to repay it back in time. Late repayments can cause you serious money problems. For help please go to