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Being able to create a monthly budget and stick to it can help you enjoy a better quality of life. Doing so will help you manage your money much more effectively.

We’ve put together this guide to help you take the first steps towards a better way of managing your finances, including tips on setting up a budget, how to stick to it, and advice on saving. Read on to find out more.

Why budgeting is important

According to research by the Money Advice Service, around 56% of UK households keep a regular budget to track how much they spend. Interestingly, over half of these budgeters found that doing so gave them peace of mind that made them feel better about life.

Creating a budget will give you a true picture of what is going in and out of your bank, allowing you to plan accordingly. By doing so, you will be more prepared for the short term while also building things like an improved credit rating or a savings account for the long term. With a few simple steps, you can build a solid foundation for the rest of your life.

How to create a budget

Follow our easy step-by-step plan to create your budget from scratch.

Step 1 — Gather your paperwork

To create your budget, begin by gathering your financial paperwork — bank statements, bills, cash payment receipts, and anything else that is crucial to your spending. With these records in hand, you will be able to get a much better picture of what you are spending every week or month. They will play a vital role in being able to determine your monthly average spend.

Step 2 — Calculate your income

For comparison against what is going out of your bank account, you need to know what is going in. Record any money that you receive every week or month, including your main work pay after tax and any regular outside sources of income, such as tax credits. Add them together to calculate your total income.

Step 3 — Calculate your expenditure

Look at your paperwork and note down each time you have paid for something or money has been billed to your account. These instances will count as your expenditure, which will be compared to your income to see how much you have to spend or how much you should be looking to save every month.

You can list them by hand, in a spreadsheet, or by any other means that will allow you to total and sort them easily — it often helps to group them into categories of spending as you go, as you can then get sub-totals for each area that you are spending money in.

When you are sorting through your payments, consider the following types of expenditure (we’ve included some examples too).:

  • Utility bills: Gas, electricity, water
  • Financial payments: Credit cards, loans, mortgage, savings payments, pension
  • Insurance: Car, home, life, electronics, pet
  • Grocery shopping: Food, drink, household essentials, pet products
  • Other household bills: Rent, landline phone, mobile phone, internet, TV, cleaning
  • Travel costs: Vehicle fuel, vehicle servicing or repairs, public transport, parking permits
  • Leisure expenditure: Holidays, eating out, entertainment subscriptions, sports, cinema
  • Occasions: Birthdays, Christmas, Valentine’s Day, Mother’s Day, Father’s Day
  • One-off costs

Bear in mind that this list is not exhaustive, and you should include any other regular expenditure in your budget planning.

Step 4 — Split expenses into essential and non-essential

Once you have your list of expenses, you can split them into two groups: essential and non-essential.

Your essential expenditure should include things that are fixed payments, such as rent, internet, or loan repayments, or things that are crucial to your way of living, such as groceries, fuel, and toiletries. Non-essential expenses are those that aren’t vital and you can live without, like entertainment costs or clothing spending beyond necessities.

Step 5 — Calculate your discretionary income and compare it to your current expenditure

Once you have your complete lists of income and expenditure, you can calculate your discretionary income, which is the amount left after you’ve covered your essential costs. To do this, add up your spending you’ve categorised as essential and subtract it from your total income. The amount you’ve got left is your discretionary income, which represents what you have to spend on the non-essential costs you’ve also listed.

If your discretionary income exceeds the amount you are currently spending on non-essential costs, then you have a positive budget and can begin to look at doing things like creating a savings account or adding to a pension fund. Doing so can benefit you in the long term, as you can begin to build for the future. Should your discretionary budget not be enough to cover your non-essential spending, you have a negative budget and you will need to make some adjustments to transform it to a positive one.

Step 6 — Reduce your essential outgoings

If you have a negative budget or want to increase your discretionary income, you need to reduce your essential outgoings.

For example, a grocery bill could be reduced simply by choosing own-brand products over premium ones, or switching to a cheaper supermarket altogether. Similarly, you could also look into whether taking public transport is less costly than running a car every day. The Money Advice Service has a good range of resources on cutting costs, with plenty of guidance on how you can bring down your spending.

Step 7 — Evaluate and adjust accordingly

You need to keep track of your spending to ensure you do not spend or save more than your budget allows. Regularly reviewing your finances will also allow you to identify any areas where you have over- or underbudgeted, so you can nip any issues in the bud. And don't forget that, as debt is paid off, you may find yourself with more discretionary income which can go towards essential costs to improve your quality of life, or non-essential 'treats' like holidays.

Keeping track of your budget with an app

One way of easily keeping track of your budget is through one of the many budgeting apps that are available for your smartphone or tablet. These nifty applications can help you to keep an eye on your day-to-day spending, while also giving you an instant look at the bigger picture if you need a reminder of the goal that you are working towards.

You Need A Budget (YNAB) is an app that uses an innovative budgeting method to help you make sure every pound goes to the place that it should each month. It requires a monthly subscription, but if you dedicate yourself to using it, it can be worthwhile. If you wish you could see all your finances in once place, Money Dashboard is an app that compiles everything on one screen so that you can see it clearly. This can help you to make decisions with the bigger picture in mind.

Also worth a mention is the Money Advice Service’s completely free budget planning tool, which can help guide you through the creation of your own personal budget in a way that is similar to the method discussed in this guide.

How to stick to your budget

Once you have identified which areas you need to adjust your spending in, you need to be able to meet your goals to benefit. The challenge comes when you have to adapt your lifestyle to fit in with your new rules, keeping previous spending habits in check.

However, once you’ve gotten yourself into your new routines, you can begin to look towards a brighter financial future. To help you stick to your budget, we’ve come up with some essential tips below.

Be realistic

When you’re making adjustments to your spending habits to get your budget in shape, you need to be realistic about the goals that you set yourself. For example, if you regularly spend around £300 a month on going out and socialising with friends, sticking to a £100 budget will probably be difficult.

Rather than drastically changing your lifestyle, you can make gradual changes to meet your long-term goal — for example, by lowering the £300 you spend by £40 a month until you hit the £100 mark. The other cash you need to save can be balanced out with some minor cutbacks in other areas. Sometimes it’s better to make smaller adjustments across the board than one large cut to something that you enjoy doing or you know will be difficult to adapt to.

Set up direct debits

If you want to make sure that all of your fixed costs are paid on time, it’s a good idea to set up direct debits for each of them to take place the day after you get paid. Not only will this guarantee that they get settled on time, but it will also ensure that you have a realistic budget to work with for the rest of the month. As the funds will be taken out of your account almost straight away, there will be no temptation to spend beyond your means with money that should be used for essential bills.

Take it one day at a time

Some people prefer to take things slowly by setting themselves micro-budgets for each day. This can often be a great method if you have trouble sticking to a more long-term goal. By sticking to smaller-scale daily budgets, you will be taking steps towards reaching your target in a manageable way.

There are a couple of methods you can use to easily meet a daily spending limit. One of these is to withdraw a certain amount of money each day and to use this for your daily budget, which makes it even easier to know how much you have left. Another is to keep a record of what you spend each day, something that can be achieved by making notes, keeping receipts for each transaction, or using the apps mentioned above. Doing so will allow you to see where you are going wrong and what could be adjusted to stay in the black.

Share the responsibility

If you’re creating a budget for a whole household, it’s important to communicate to others that you intend it to be shared responsibility. Make it clear that everyone should uphold it, not just yourself. After all, there’s no point to all of your effort if someone else is continuing to overspend, so it needs to be a team effort with everyone pulling in the same direction.

You can either plan the budget together or take the time to sit down and talk them through it. Be sure to check in regularly to see how they are getting on, and you can even share any money-saving tips with one another to help out.

Plan your meals in advance

Sticking to a new budget is a great time to adopt a new healthy-eating regime, where you plan all of your meals in advance, rather than making impulsive purchases at the supermarket or ordering a takeaway. By taking the time to plan your breakfasts, lunches, and dinners ahead of time, you can compile an exact shopping list of ingredients, rather than shopping with no real idea what you need.

According to WRAP, British people threw away £13 billion worth of food in 2015 that could have been eaten. By planning your meals in advance, you can carry out your grocery shop safe in the knowledge you won’t be contributing to this waste of food and money.

Anticipate spending for occasions and social events

It pays to keep one eye on the calendar in anticipation for occasions or events that you will need to budget for. From planning and buying your other half’s birthday gift to attending a stag or hen do, it’s worth budgeting for any spending that you have plenty of notice for. So, if you know that something on the horizon is going to be quite expensive, make some extra adjustments or save some extra money in the weeks leading up to it, and there is a good chance you’ll be able to accommodate it.

Learn to exercise restraint

Sometimes we can be our own worst enemy when it comes to budgeting, and we may be tempted to divert from the plan and make an impulse purchase. If you are able to exercise some restraint when you are shopping, it will go a long way towards saving you some money on items that you don’t really need and will regret buying a few days later. Get into the habit of asking yourself if you really need what you are thinking of buying and sleeping on the decision. You might find the answer is ‘no’ more times than expected. If you really want something, you should try to wait until you've saved up enough money especially.

Avoid overspending on big-ticket items with a credit card

Many studies, such as this one from MIT, have found that people tend to pay more when using their credit cards. There have been a few proposed theories behind this, including that using cards makes people feel more detached to their finances than cash, as well as the fact that people don’t tend to feel financial pinch until paying the bill at the end of the month.

You can use this insight to your advantage by avoiding the use of your credit card for large purchases that you might be prone to overspending on. If it’s something that is essential, it’s usually better to go away and do some research, then shop around for the best deal before spending your cash.

Pay back high-interest debt first

If you owe money to one or more sources, you should always aim to pay back the one with the highest interest costs first. Doing so will mean that you pay less for borrowing in the long-run.

Make the minimum payment on loans where the interest fees are lower so you can prioritise the debt that will cost you the most to keep. Once you have wiped the debt from the highest interest source, you should move onto the second-highest next. Please note that prioritising some debt shouldn’t mean that you neglect to meet the repayment terms of another loan or credit card.

It's usually better to pay back debt rather than channelling extra money into savings because the interest accrued on the debt is likely to be higher than the amount you're making on your savings. While it is nice to have a safety net, anything beyond that should go towards overpaying debt.

Dealing with emergency expenses

Every once in a while, we all have to deal with an unforeseen and unavoidable emergency expense. Perhaps the car that you rely on has suffered a breakdown or a fault that has forced it off the road, or maybe you’ve dropped your phone and it needs to be replaced or repaired at short notice. These instances are often costly, and can take a chunk out of your carefully planned budget when they occur.

You should always look to be proactive in these situations, so if you can save even a small amount of money each month towards an emergency fund, it is a positive step. A good target to have in mind when deciding how much to save is to add up three months’ worth of essential costs.

However, if you don't have savings available to cover an emergency expense, it can be very problematic. So, what can you do when faced with paying the full amount of an emergency expense? Let’s take a closer look at the best course of action.

Limit spending on non-essential things first

Can you recover the emergency cost from your non-essential expenditure? If so, you can do this without having to cut anything from your essential costs. For example, if you need to spend £100 on washing machine repairs, you can sacrifice £100 of the money you usually spend on entertainment.

Take action sooner rather than later

If you are able to identify that the emergency expense will prevent you from settling your bills on time, it’s much better to get in touch with creditors sooner rather than later. If you ignore the issue or wait until a later date, you are more likely to be pegged with late fees.

There are often more options than you might think in these situations. For example, credit card companies may be willing to defer payment or find a different solution to the problem, and utility providers often have payment plans for struggling customers. Mortgages can also sometimes be modified, depending on your circumstances.

If you need to borrow, choose a friendly short-term loan

Sometimes, an emergency expense can prove too costly and threaten to stretch your budget to breaking point, giving you no other solution than to borrow money to cover the amount. Should this happen, you should take the time to research the lending source that is right for your situation.

From one month to another, there are a few options available to get quick emergency funds:

Payday loans

One of these options is the payday loan, which has received quite a lot of attention in recent years, mostly for negative reasons. The process behind one of these loans sees a small amount of money being borrowed against no belongings, with a repayment date scheduled for the next payday.

The problem with these loans is that the full amount that has been borrowed, plus interest, is usually due to be paid on the next payday. This means that you have to stump up a hefty sum immediately, or face non-payment on the loan. The short payback period and the need to come up with all of the money upfront can make raising the cash for a repayment very difficult.

Cash loans

Unlike payday loans, cash loans offer a more flexible and forgiving repayment schedule. Here at H&T Pawnbrokers, we offer cash loans of up to £5,000, which can be transferred straight into your bank account or paid cash-in-hand at one of our stores.

You can choose the amount of time that you want to take out the loan — between 3 and 24 months — and repayments can be made in affordable weekly, fortnightly, monthly or four-weekly instalments. This means that you are not committed to paying back the full amount all in one go.

We even have an easy loan calculator, which you can use to see what your final and monthly repayments would be, allowing you to choose the conditions that fit into your budget. What you see on the calculator is what you will pay back, as there are no hidden fees to surprise you down the line.

Pawnbroker loans

Another way to secure a quick payment is to use valuables against a pawnbroker loan. The advantage of a pawnbroker loan is that it is secured against the item you’ve chosen to submit for valuation, removing the need for a credit check. Also, failure to repay won’t affect your credit score as your item is simply kept by the lender.

At H&T Pawnbrokers, we specialise in offering convenient pawn loans. If you would like to use one or more of your valuables to secure a short-term loan, you can rely on us to provide you with the funds you need. You can find out more about this service on our pawnbroking FAQ page.

You can find out more about our services by visiting one of our 247 local branches, getting in touch with us at, or by calling 0800 838 973.