How to create a budget that you can actually stick to

I have never been thrifty. I love having dinner at restaurants where the menu is stocked with phrases like ‘natural wine’ and ‘cultured butter’. I tend to expand my wardrobe before every holiday and I've recently rediscovered my love for pumpkin spice lattes, which come in at about £5 a pop. I also live in London, which has its fair share of costs.

I am, however, on a budget. And while it means that I sometimes must sacrifice my indulgences, feeling confident about building savings and knowing that you have a backup plan if things go wrong is a much preferable feeling.

There are a lot of budgeting plans available, but finding one that actually works for you and fits your lifestyle is the most important part to sticking with it. It’s kind of like a diet: by allowing for some little indulgences, it can make the whole process feel much more doable, and less tempting to cave and abandon the plan entirely.

Here’s a few steps you can take to create a budget that’s right for you.

1. Know your actual income. Our salaries can sound a lot more attractive when we’ve not factored in things like income tax, national insurance, and pension contributions. When budgeting, what really matters is what is going into your account every month. 
   
   You can look at last month’s payslip or just look at how much was deposited into your bank account from your employer to know how much you actually have to work with. If you’re starting a new job, you can get an estimate through online calculators. 
    
2. Add it up. Write out your expenses for the month and see where it leaves you. The best way to do this is to go through the last few months of spending, and be as honest with yourself and as accurate as you can. A lot of banks and credit cards will even create monthly summaries for you so you can easily see what your expenditures have been like. 
   Being honest and up front with what you’re spending is going to create a far more realistic plan that you can stick to. It’s a good idea to leave a little money left over as a buffer-  there's always unexpected costs that will come up, and this will leave you not so pinched for cash. 
   
   There are some things we have to pay for every month that aren’t really an option. These include things like rent, utilities, council tax, and any other bits that are not optional and don’t have much wiggle room in terms of how much you spend on them. 
   
   The easiest way to get a handle on this is to add up your essential expenses from a previous month, and remove that from your income. When I get paid, I like to separate these expenses out first thing, so I don’t feel like I have more money than I do. Getting those paid off first thing can help you put them out of your mind.
    
3. Ask yourself what your goal is. It’s not easy to do something just for the sake of it. If you have a goal to work towards, that can make budgeting feel less like you are denying yourself of things, and more like you’re building to something bigger. This might be building up an emergency fund of £5,000 to fall back on or saving towards your first £10,000 of investments. 
   
   Wherever you are, don’t worry about what other people are doing. Just find a goal that can improve your financial wellbeing. Once you have this goal, you can decide a set amount that you want to set aside each month to reach it. By removing this from your income before you start to look at the rest of your expenses, you help make it a priority. 
   
   If you plan to invest your money, you can even automate the payments, so you don’t need to think about it every month. This will take away the temptation to spend and take an item off your to-do list. At AJ Bell, this can also mean discounts on your share trading if you use the regular investments option.
    
4. Identify the ‘wants’ that are important to you. Being on a budget doesn’t mean that you can’t enjoy nice things. It just means you might need to prioritise them. My mum has never been one for buying a lot of new clothes, but she loves having good quality food. I still enjoy going out to a nice dinner with friends, but I’ve sworn off takeout options like Deliveroo, because they aren’t as enjoyable to me. 
   
   It’s okay for there to be a few nice things you keep in your life, just make sure they are within reason. If it's a big spend, like holidays, it might not happen every month. But saving for them across a few different months can ease the burden when they come around.
    
5. Find the areas where you don’t mind cutting back. Just like there are little luxuries we all enjoy, there are some things that I don’t mind saving on. When I travel, I’m happy to fit my clothes in a backpack to avoid the checked bag fees. I don’t mind a few extra layers to avoid heating costs in the winter. 
   
   Having a look through what you pay for in a month, but don’t really value, can be an easy way to cut back without sacrificing too much. This can especially come in the way of subscriptions you don’t find yourself using. Another big way to save in your early years of adulthood can be having flatmates. This not only cuts rent, but council tax, utilities, and other home costs.
    
6. See where you can find wiggle room. Some of the biggest monthly expenses also have a lot of wiggle room. Look through your expenses from the past few months, and identify areas you think you can cut down. 
   
   For example, groceries can have a lot of price variation depending on where you shop, and how you search for deals. You can try creating a set list for your groceries each week or do a bit of bargain hunting to see what’s on offer for more expensive bits of the shop, like proteins.
    
7. Write out your budget. Here’s an example of what a breakdown might look like for a single person. You can build this kind of table in a spreadsheet or use a budgeting app to lay it out for you.

Monthly expenditures

Source: AJ Bell

This might be a reasonable budget if you were on a £35,000 salary, where your take home was about £2,288 each month after pension contributions and taxes (assuming a salary sacrifice system). Some people may want to save more than this, which is great. But remember, every little bit helps, and starting with an achievable goal like £100 of savings a month is all it takes to start building a habit.