How To Do A Monthly Budget

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Last Updated on November 26, 2020 by Emma


Setting a monthly budget involves listing your income and your current expenses to see what money you have left at the month, if any. After that you revisit each item of your spending and decide whether it’s OK, if you need to spend less on it, or cancel it altogether. 

There are several different methods of budgeting, and you can pick the one that works best for you. This article is your opportunity to get on top of your income and expenses once. It’s time to take control of your finances!

Disclaimer: This article may contain affiliate links. If you decide to use them, my blog may earn a small commission at no additional cost to you, which helps to fund more helpful articles for you to enjoy. Find out more in my Affiliate Disclosure. Nothing in this article constitutes financial, or other, advice. These are my views and the results of years of research, testing and learning.

Involve your partner in budgeting

If you have a partner, you dramatically increase your chances of success for the long term if you bring them into your budgeting. We are all wired in different ways, so think about how to make budgeting relevant to your partner.


Does your partner care about retiring early? More money for the holidays? Providing for your child’s future? Less staying awake worrying about money at night? Better mental health from fewer financial worries?

Think about a hook to motivate your partner to have a conversation, and ideally repeat this monthly as you track your progress.

At some stage, you’re likely to have a tricky conversation about expenses. It’s much easier to agree to cut expenses that you feel an attachment to if you are both on board with what making these savings is achieving.

Create a monthly budget in eight easy steps

Creating a budget doesn’t have to be difficult, and you don’t need any specific equipment to do it. Just follow these steps.

  1. List your sources of income each month and make a total.
  2. List your total income in a simple spreadsheet in Excel or even handwrite it on a piece of paper. If you’d appreciate guidance on a format to use, email with the heading ‘Free Budget Worksheet’.
  3. Review your bank statements to find out where your money is going. Look across a year of statements to make sure you factor in quarterly and annual expenses.
  4. List your expense types and their amounts in the same spreadsheet or piece of paper.
  5. Calculate how much money you have leftover from your income after you have paid all of your monthly expenses, also accounting for a proportion of your quarterly and annual expenses.
  6. Use this insight to decide how much you want to spend on each expense line monthly, so you ideally have money left over at the end of the month to put into savings, to pay off debt, or to put towards retirement (depending on where you are in your financial goals).
  7. Track your progress throughout the month.
  8. Meet with your partner at the start or end of each month to track your progress. Then discuss your budget for the upcoming four weeks.

Take action if your budget shows more expenses than income

Initially your expenses may outweigh your income. Don’t panic.

All this means is that it’s time to save money on your expenses. A great place to start is by reading Tips to Start Saving Money. This article provides lots of guidance on how to take control of each aspect of your spending so that you can reach your goals.

Another way to deal with being ‘in the red’ is to work on increasing your monthly income. There are so many ways to do this. For example, if you a good writer, you could take on some freelancing projects through platforms such as Fiverr or Upwork. This additional income will also help if you lose your job in the future.

For inspiration on side hustles to increase your income, check out Best Side Hustles.

If after going through the exercise to decrease your spending and increase your income, your monthly income is still less than your fixed expenses, then you will need to take some more drastic steps to cut your spending. For example, you could move to a less expensive area to dramatically reduce your rent or mortgage payments.

Work towards some financial goals


Staying consistent with your budgeting can become tedious if you do not have some financial goals and lifestyle goals that are motivating you each day, week and month.

Spend some time thinking about why budgeting is important to you, and what it will enable you to do over the long term. For example, will changing your spending habits allow you to reach retirement sooner, or are you motivated to pay off your mortgage, so you have more choice in how you earn money and where in the world you live?

Your long-term goals can sometimes feel overwhelming or too far away. In that case, you may benefit from setting some short-term goals that break the bigger picture into smaller steps, such as:

  • Stay in budget this month
  • Reduce my spending on nights out by £50 this month
  • Earn £100 through side hustles this month
  • Take my lunch to work tomorrow.

Get into the habit of saving for significant items of spending

It’s easy to be surprised by annual insurance renewals and one-off items, like needing a new car. The more proactive you can be in your budget planning, the higher your chances of having funds ready to pay for these expenses when they are due.

What’s more, if you have the money available as cash, then you are likely to save money because you won’t have to use finance or instalment plans.


It’s a fantastic feeling knowing that you have money in savings ready to pay for things in full, rather than buying on credit.

Do you need some help with your budgeting?

If you struggle to motivate yourself with budgeting, then using a budgeting app can help you get started. There are numerous options to choose from, but some of the most popular ones are:

You’ll pay a fee to use these services, but the apps can pay for themselves if they encourage you to spend less consistently.

If you need some added motivation for your financial plan, or inspiration for how to manage your money, then I recommend the following books:

The Total Money Makeover by Dave Ramsey


Retire Inspired by Chris Hogan


Everyday Millionaires by Chris Hogan

If you fail to plan, you are planning to fail – Benjamin Franklin

If you’ve read this far – congratulations! You now know how to plan your finances by setting a budget.

If your first attempt at budgeting shows that you are spending more than your expenses, then you have two levers to pull:

  • Spend less by cutting your bills (read this article for inspiration on cutting expenses)


  • Increase your income (read this article for ideas to boost your income).

The first time you set a budget can be painful, especially if it shows you are in the red. However, the more consistent you are with proactively planning your incomes and expenses, the easier it will become over time.

One way to increase your chances of success is to involve your partner in your financial plan by scheduling a monthly budget meeting. In this meeting you will track last month’s income and expenses, and then plan for the month ahead.

If you have any questions, check out the FAQs below, leave a comment below or email I’ll update this article with responses to the questions I receive.

Happy budgeting!

Frequently Asked Questions


Why do I need to write a budget?

A budget shows if you are spending more on your bills and other expenses than you earn. It also helps you to make financial decisions, such as whether you can afford to buy that new TV or pay for that family holiday.

Going through your bills line by line is a great way to find ways to make savings. You can then use the money you save to pay off debt, put it into retirement accounts or other investments.

If you don’t make a budget, you are less likely to achieve your financial goals and manage your money effectively.

What’s the best way to track my spending?

You can track your spending using a pen and paper, using a spreadsheet on your computer, or a specialist app such as EveryDollar or Yolt. Try to keep it simple so that it does not become overwhelming or too time-consuming. You’ll find most of the information that you need on your bank statements.

If you’d like support with a simple budget setting format, email with the title ‘budget spreadsheet’.

What about unexpected expenses?

Within your budget, it’s wise to set aside some money every month for unexpected expenses; for example, if something breaks on your car, or in your home. That means you won’t have to borrow money or go over budget.

Dave Ramsey recommends that you start with an emergency budget (or fund) of $1000 and then, once you’ve paid off your debt, apart from your mortgage, you build up an emergency budget of three to six months of expenses. At this stage, you have a lot of protection available to help you get through unforeseen spending needs.

How much should I be putting towards retirement?

Your retirement savings account, a pension in the UK and a 401 k in the US, is one area that you may benefit from some formal financial advice. A financial advisor can help you to save for retirement tax efficiently and to check that you are saving enough to fund the lifestyle that you want to have in later life.

Dave Ramsey, who focuses on the US retirement system, recommends making the most of any matched retirement contributions that your employer will make, and overall aiming to contribute 15% of your monthly income towards retirement consistently. Some people feel this is too high, others too low.

One free tool that I love is Chris Hogan’s R:IQ – Retire Inspired Quotient. You just need an email address and to answer a few questions. The tool works in dollars, but if you use a different currency, you can put in the numbers as if it’s your local currency.

I’m over budget due to debts with high-interest rate

If you are struggling to make ends meet due to balances on credit cards and loans, then it’s time to work on a debt repayment plan. There are two main methods of debt repayment:

  • The Debt Snowball method, which involves paying off your debts from smallest to largest. Many people find this method to be the most motivating because you see progress quickly.
  • The Debt Avalanche, in which you pay off your highest interest debts first (typically credit cards or payday loans), and your lowest interest rate debts last. People who like to minimise their interest payments tend to favour this method.

For full details of how to take control of your debt, you can read How to Pay off Debt Quickly. Please note, there are differences depending on which country you live in. For example, the student loans system in America is very different to the one in the UK, where you typically only repay your loans when your income reaches a certain level and they attract a far lower interest rate.

If you make progress in paying off your debts, consider reducing your spending limits on credit cards and other lines of credit, if you might be tempted to start spending on them again. You can even go all-in and close the accounts as you pay them off, so that there is no going back to spiralling debts.

Make sure that you stay on top of your debt repayments otherwise you are likely to incur penalty fees, which increase your monthly expenses. You’ll also damage your credit score, which can be a problem if you need to borrow in the future or apply for something where you need to demonstrate creditworthiness, for example, if you want to apply to rent or mortgage a property.

How much money should I save in my emergency fund or savings?

How much money you need in your emergency fund depends on where you are in Dave Ramsey’s baby steps and your attitude to risk.

Dave recommends that you:

  1. Initially save up $1000 (many people in the UK go for £1000, which is a bit more) – Baby Step 1
  2. Then pay off all of your debt except your mortgage – Baby Step 2. Dave recommends that you close each credit card account as you pay it off and just use debit cards. Not everyone agrees with this advice, as credit cards can come with benefits such as points. I keep a credit card that I can spend on in different currencies without incurring foreign exchange fees, and I pay it in full each month. However, if keeping a credit card open is likely to encourage you to get back into debt, then it’s worth listening to Dave’s rationale.
  3. Then save three to six months of expenses in a fully-funded emergency fund – Baby Step 3.

The more risk-averse someone is, the more they tend to save in their emergency fund. However, it’s important to consider the opportunity cost of saving more than three to six months of expenses, in terms of the money you are not investing for retirement, and the compound interest you’ll miss out on.

It’s crucial to keep this money somewhere that is easy to access, such as an instant-access savings account. Avoid spending money from this savings account on anything that is not a real emergency.

How can I reduce my monthly bills so that I can hit my budget?

Reducing your monthly expenses all in one go can be overwhelming. You may find you have more success if you start with one or two of your most significant expenses, and tackle those before you try the smaller ones. For example, if you are significantly over budget, you could consider moving to lower-cost accommodation. This approach is likely to make a much larger reduction to your fixed expenses than smaller savings such as using energy-saving lightbulbs, but of course, it is a significant disruption to your lifestyle.

To get started and get inspiration for over 50 ways to reduce your bills, check out Tips to Start Saving.

How do I budget for health expenses?

If you live in the UK, then you have the benefit of support from the NHS to help with health expenses. However, some people choose to pay into a private health policy, or they receive private healthcare as a benefit from their job.

In the US, it’s vital to have health insurance through a personal policy, or from your employer.

It’s wise to check the details of your policy to see if you have to pay an excess for treatment. If so, you’ll need enough money in your emergency fund to cover this.

How do I calculate my take-home pay?

Take-home pay is what ends up in your bank account after tax and national insurance (in the UK), have been deducted. The easiest ways to check on this are to look at your payslips or your bank account.

If you want to calculate how much of your income you will keep from a new job before your first monthly income, or you have an income that fluctuates, then you can find tools that do this from a quick google search.

For example, in the UK, I use The Salary Calculator.

How often should I set my budget?

I find it helpful to set a monthly budget. Just be sure to keep track of when your annual expenses such as home, car, and life insurance are due and include a provision for these monthly.

What if I don’t have a set monthly income?

If your income fluctuates, and you have fixed expenses, then budgeting becomes even more important. You’ll need to save more money in higher-income months, to avoid going over budget in lower-income months. Alternatively, you could find ways to potentially boost your income with a side hustle in lower-income times, or to reduce your spending in those periods more dramatically.

Is it normal to feel guilty when spending money?

If you’ve been working hard on reducing your living costs and working with a restrictive budget plan, then you can reach the stage of feeling guilty every time that you spend money. For this reason, it’s a good idea to include a budget for some ‘fun money’ within your plan, whenever possible. That’s a pot of money that you know you can spend without guilt on anything that you want, without detracting from your financial goals.

Where do benefits such as child support sit in my budget?

Any benefits that you receive are a form of income. If you have to spend these on something specific – for example, a foster carer may receive an allowance to spend on things like clothing for the child – then capture that in your expenses budget.

If you’re not sure what benefits you are currently receiving, check the statement for your bank account (your checking account in the US).

Should I repay a 0% interest credit card debt?

The best approach to dealing with an interest-free credit card depends on the total picture of your expenses and how disciplined you are with your spending.

First of all, a zero-interest line of credit is much better than paying a high APR, so it makes sense to move your debt to lower interest rates if you can. You may need to pay a balance transfer fee, but after that, all of the payments you make will go towards reducing the money you owe, rather than on interest.

If you are working the debt snowball method of debt reduction, then you will technically repay this debt, once it’s the smallest debt left on your list. With the debt avalanche method, you’ll repay interest-bearing debts first.

Some people who are very disciplined with their finances argue that they can earn more by investing the money they owe, rather than by paying it off before it becomes interest-bearing. For others, 0% credit gets them spending more money than they can afford, which then causes a problem as soon as the interest kicks in.

Are budgeting apps worth the money?

Budgeting apps such as EveryDollar and Yolt make it very easy to keep track of where your money is going, what bills you’ve paid and what is still to come every month. However, you’ll usually have to pay a fee for the service, which will increase your expenses.

If the app will save you time and make you more likely to stick to your budget every month, then the costs may well be worth it. If, on the other hand, you are happy to work with a spreadsheet or a pen and paper, then not paying for an app could be another way to minimise your expenses.

If you do pay for a budgeting app, make sure you use it every month!

What’s the best way to save money on insurance expenses?

Shopping around is the way to reduce your expenses relating to insurance policies. You can save time when shopping around by using comparison sites.

If you pay your premium costs in full, rather than paying your bills in instalments, then that’s another great way to spend less.

If you’d like more information, you can read:

How can I increase my income?

Increasing your income is a great way to get out of the red on your budget, even if you can’t reduce your spending further.

There are so many ways to increase your income, including:

  • Working extra hours if you are on an hourly rate and your employer supports this
  • Taking an additional part-time job in the evenings or weekends
  • Taking steps to secure a higher paying job, which will increase your income long-term
  • Freelancing alongside your full-time job on a site such as Fiverr, or on Upwork or alternatively Bark
  • Register with sites that will pay you to complete surveys, or take part in market research
  • Start a blog and monetise it – be realistic that this income stream could take six to 12 months to get any financial results, but if you are consistent you have the opportunity to earn passive income
  • Start a podcast or a YouTube channel
  • Start teaching online – you’ll find schools that want native speakers of all languages without needing a teaching degree, or you can offer your own classes on platforms such as OutSchool

What are your experiences with budgeting?


  • Are you in control of your spending?
  • Do you enjoy budgeting?
  • Do you set a monthly budget?
  • What is your favourite way of writing a budget?
  • What are your top tips for reducing your spending and increasing your income?

We’d love to hear from you in the comments below.

If you enjoyed this article, you might also like:

What is the Envelope Method?

How to Pay Off Debt Quickly

Best Side Hustles

How to Make Money at Home Online: Top 20 Ways

Best Ways to Make Passive Income

12 thoughts on “How To Do A Monthly Budget”

  1. Hello there!  This is an awesome article you’ve got here.  I totally agree with everything you’ve said here,  in my opinion,  Budgeting saves you from wondering every end of the month where your money went. A budget enables you to know what you can afford, take advantage of buying and investing opportunities, and plan how to lower your debt.

  2. Before I took voluntary redundancy in 2002 my biggest concern was how would my family survive financially
    I was able to draw my pension early but was concerned about things like university costs for our daughters etc
    As it worked out my self employment consultancy work was very successful so I did not need to worry. A problem with self employment is cash flow as several times I had to wait a long time for payments but still had to pay the bills
    Start with an Excel spreadsheet and list out income, standing orders for bills gas electric insurances etc
    Log all savings plus when they are Bonds and ISA’s the maturity dates
    You may need to use these funds for replacements like that dodgy washing machine
    I could not budget my consultancy income accurately but I could make a guesstimate
    If I had done work and needed income then invoice for part work don’t wait until it’s finished
    I updated the spreadsheet every time I did any work to make sure I did not miss any uncharged work
    A simple Excel cash balance allowed me to check my out going’s and stop making unnecessary payments
    Do I really need that insurance or that subscription ?
    Budget ahead ie when is the car going to need an MOT put some cash aside for possible work
    Look up the cycles of big annual bills and routine things like the gas servicing
    Can I spread the costs by direct debits?
    Can I get some things from charity shops instead of buying from stores ?
    Do I need to contact company X to see if I can do any more follow up work
    Sometimes a phone call reminds them they could use you to do this
    We survived despite some rocky times but at all times I was on top of the finances with the support of my very econimically minded wife

  3. This is a very interesting read. I will definitely aim to try the budgeting apps and set myself goals to save for. I also like the section where you described a goal to spend less on eating out etc as I feel that simple changes make a big difference over all. Thanks, Marianne

  4. Thank you for sharing this inciteful article. I think that the advice and tips you offer will be of great value to many people, especially as we are now in very uncertain times after having gone over 10 years of cheap, easily accessible credit and a very buoyant global economy. People should really start to think about pulling their belts in a little tighter and I am sure that your advice will go some way to help. I always find it amazing that things like budgeting and understanding how to manage one’s finances is not something that is taught in school.

    • Hi Paul,

      I absolutely agree with you. Budgeting is a vital life skill and yet we learn so little about it in the education system. It’s crazy!

  5. I must admit that a few years ago, I used to loathe budgeting. Sadly it was just an ego thing. Just the thought of it made me feel less macho. However, that macho man would fly into panic whenever there was a slight delay in the more regular payments and only then would the expense tracking and cost cutting swing into action. Thankfully, all this changed when I started setting financial goals and working towards them. I’m glad to see that your article captures this. Thanks Emma.

    We are Blessed.

    • Mark, thank you so much for sharing your story. Yes, the hardest part with budgeting is often getting started. It’s easier sometimes to bury our head in the sand rather than confronting the reality of our financial situation.

      I wish you every success!

  6. Watch car purchase via a PCP scheme where you may be paying around 5 to 8% interest rate
    Get a quote from the finance company for the settlement sum
    Then work out what you pay in interest and what you would gain as interest if you have the money in savings
    With interest rates at ridiculously low rates of 0.15% to 0.55% typically it’s advantageous to settle especially if you get a rebate


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