How to create a budget

A budget gives us a clear picture of how much money we have coming in each week or month, and how much we can spend. It can also help us to save for the future, deal with unexpected costs and take control of debt.

If you own a business, it is good practice to develop separate budgets for household and business income and expenditure. Decide how much business money should be classed as wages for you and any other family members, and include these wages in the household budget.

Three steps to creating a household budget

1. Income

Using a worksheet like the one on page 14, write down how much money you have coming in each month, including:

• wages (from your business or other employment)
• government support or pension payments
• gifts from friends and family
• any other income, such as loans from a savings and credit group

Remember to include any income that you might receive over the course of a year, but not necessarily every month. For irregular income, work out how much you receive in a year and divide it by 12 to get the monthly amount.

2. Expenditure

Work out how much you spend each month, and what you spend it on. You can use bank statements and receipts to help with this. If you are unsure, write down everything you spend for a few months until you have a clearer picture.

Using a worksheet like the one on page 15, divide your expenditure into categories. For example:

• home costs, such as rent/mortgage payments, and household bills such as gas, electricity, water and internet
• living costs, such as food, clothing, healthcare and phone
• travel and vehicle expenses, including public transport costs, and vehicle fuel, maintenance, insurance and repairs
• costs related to family such as childcare, birthday presents and school fees
• leisure activities
• future needs, such as house maintenance and repairs, a new phone, or a new motorcycle
• giving, such as charitable donations
• interest payments on loans
• taxes

Remember to think about your expenditure across the whole year. For one-off expenses, divide the amount by 12 to get a monthly amount. Multiply weekly expenses by 4.33 to get a monthly total.

3. Balance your budget

Balancing your budget is the most important part of this process. 

Over the course of a year, are you spending more or less than your income? If it is less, this gives you an opportunity to increase your savings (see page 20). If you are spending more than your income, there are a few things you can do to balance your budget.

Reduce costs 

Look back over the things you listed in your expenditure. Colour-code anything that is a ‘want’ in one colour and anything that is a ‘need’ in another colour.

‘Needs’ are things you cannot live without, such as food and paying your rent. ‘Wants’ are things that you enjoy but are not essential, such as additional clothes or meals in restaurants.

Are there any areas where you could reduce costs? It is important not to cut out all the things that bring you joy, but you need to be honest with yourself about what you can realistically achieve with your money.

You may be able to reduce costs by:

• cutting back – spending less on something, such as hobbies or luxuries
• cutting costs – looking for cheaper alternatives and discounts on the things you need 
• cutting out – not spending money on things that you do not really need

Increase income 

Although it may not be easy, it is worth thinking about how you might be able to increase your income to help balance your budget. 

This might include:

• working extra hours
• making sure you are receiving any government support that you are entitled to
• asking grown-up children who live with you to contribute to household costs
• selling things you no longer need, such as old clothes

Once you have a clear budget in place, regularly refer to it to make sure you are not overspending in any particular area.

Budget worksheets

Use worksheets like these to record your monthly income and expenditure. Add more rows if you need them. 

Once you have done this, subtract your monthly expenditure from your monthly income to work out if you are saving money, or if you need to spend less.