In the beginners’ guide of how to budget UK, you will learn how to start a budget UK, the effective strategies for beginners to start a budget UK, and the simple tool to help you budget.
Living paycheck to paycheck can be difficult, but there are ways to ease the pain by implementing and utilizing a budget that takes care of all of your expenses, large and small.
Budgeting is an important element of effectively managing your money. However, it can also be a daunting task especially if you are a beginner.
Therefore, making your budget as simple as possible will allow you to start taking control of your finances, even if you’ve never done this before.
For a short version, check out the web story:
How should a beginner start a budget UK?
Budgeting doesn’t have to be complicated. It’s simply an activity for you to know how much money is coming in and how much money goes out in a defined period.
Keep it simple – Especially if you are a beginner, sticking to a simple method is key to success.
Use a template – having a budget planner template, takes the thinking out of your hands. All you need to do is just fill in the blanks. I will be walking you through this simple one step by step.
JUST START – There are no more excuses. So rip that bandaid off and start taking control of your money.
7 Strategies for beginners to start a budget UK?
Before we get into an example of how to make a yearly and monthly budget, here are 7 budgeting strategies for beginners to keep a firm grasp on your money:
1. Set a baseline.
Before setting your money target, start with knowing where you are at to establish a baseline. This simply means to work out how much you earn and how much you spend for at least the last 3-6 months. I recommend ensuring you include the summer months and winter months, as expenses can vary.
You can either use your bank statements or use a free app to do that.
2. What is the 50/20/30 budget rule?
The 50/20/30 budget rule is a simple method to help you distribute your income. The rule of thumb is to allocate;
- 50% of your income (after tax) to ‘NEEDS’, which include rent/mortgage, bills, food, transportation, and other living expenses.
- 20% of the income should go to your ‘SAVINGS’, which also includes paying off debt, pension fund and/or other investment.
- 30% on ‘WANTS’, spendings like eating out, subscriptions, shopping etc.
Use this rule of thumb to assess your baseline and see where you are at. Depending on your personal money goal, you can adjust the percentage of each category accordingly.
3. Break your budget up into categories.
Following the 50/20/30 rules, you can break your expenses into different categories. Within the NEEDS category, you can have “Utilities,” “Fuel” “Groceries” etc. For the WANTS category, you might have “Entertainment,” “Clothing”, “Personal care” etc.
Worried about missing any categories? Don’t worry, the template below already has pre-populated common categories. All you need to do is to fill it out.
4. Pay money into your savings first and automate it.
Too many people try to do this last and it comes back to bite them because they end up not having enough money left. Plan to put money into your savings account as part of your budget and pay yourself first before you worry about other expenses. Even better, have a transaction scheduled that will transfer a specific amount into your savings as soon as they get your paycheck.
5. Pay your bills online.
Automate your bill payments as much as possible so that you don’t risk missing a payment by accident. Consider automatic bank withdrawals and pay bills online through automatic debit whenever you can.
6. Stick to your spending limits.
Once you create spending limits or spending goals for each of your budget categories, one of the best strategies to follow is simply to stick to them. Maintain your spending limits as closely as you possibly can. If you consistently find yourself surpassing them, you must determine why and alter your budget accordingly.
7. Change your budget according to need.
If something isn’t working, or if your income or expenses change, then let your budget be flexible and make changes as you need them. Once your budget is set up, it’s easy to make small changes as necessary.
How to create a monthly budget plan for a beginner UK (using a simple budget template)?
In this beginner’s guide of how to budget UK, you will learn how to create a monthly budget plan using this simple budget template, step by step.
- To start, establish a baseline by using the previous months’ bank statements. (Tip #1 from the 7 Strategies for beginners to start budget UK above).
- Check where you are against the 50/20/30 rule of thumb. This will determine your spend percentages.
- Develop your budget based on your spend percentages and fill in the budget column.
Your NEEDS are less easy to change, so initially, you might want to ensure you budget for that spend percentage.
Your WANTS and SAVINGS can be changed a little easier so here you can budget to achieve your spend percentage goals.
As you track each cycle with actual spend against your budget, you will start to see opportunities to adjust your spend percentages to better achieve your goals.
Calculate the difference between the budget and actual, and make any notes for the reasons.
Use the formula at the bottom of the sheet to determine any spare cash which can then be put back into the following month’s budget. If you always have some leftover each month, this gives you an opportunity to save more, pay off your mortgage earlier, invest etc.
In addition to monthly budget planning, this budget printable template is flexible for weekly and bi-weekly tracking as well.
How to make a yearly budget plan UK?
As a beginner of how to budget, you can stop at the monthly budget to keep it simple. But if you want to set annual goals and have an overview of your month to month spending, you can use the Annual Finance Tracker.
- Fill out the STARTING POINT.
- Mark the month and year that you are starting. Your starting point doesn’t always have to be in January, you can start any month of the year.
- The ACCOUNT TOTAL is the total amount of money you have in all your bank accounts.
- DEBT is the total amount of debt you owe excluding your house mortgage.
- NET WORTH is the difference between the ACCOUNT TOTAL and DEBT
- Setting the GOALS.
- These are the goals you want to achieve in a year’s time.
- Transfer from the Monthly Budget Tracker.
- Add in the numbers from the formula at the bottom of your monthly ‘Budget Tracker’ to the table. This creates a simple view of your monthly spending for the full year.
- Calculate Year end total
- Complete the formula at the bottom of the sheet to work out if you achieved your YEAR END NET WORTH GOAL.
NOT just for beginners guide of how to budget UK…
Don’t live in the UK? I got you covered.
This budget template is NOT just a tool for those of us who live in the UK. It’s suitable for all currencies. It includes £, $, € and a blank template for all other currencies.
Create an emergency fund
When it rains, it pours.
$hit happens in life and it can be costly. Dental fillings, car tyre punchers, the dishwasher stops working etc… things you just have to pay for in order for life to function normally.
So it’s always good to have an emergency fund available for those rainy days. This will prevent you from falling back to borrowing money with a high interest rate.
To create an emergency fund, firstly you need to decide how much you need and how long to achieve the saving.
To determine how much you need to save, the rule of thumb is 3-6 month worth of your living expenses. With the simple budget planner printable, you can just add the NEEDS and WANTS expense categories for each month.
Step 2, is to start saving. This visual 1K emergency fund tracker allows you to colour the amount as you go, helping to track your progress visually along the way.
Set clear boundaries on what the emergency fund is for. Whether it is medical bills, car repair or job loss, draw clear boundaries on what the emergency fund will be used for.
Finally, keep your emergency fund topped up. Once you draw an amount out of your emergency fund, make plans to top it up.
How to save money when you live paycheck to paycheck?
Is it possible to save money if you are living on a tight budget or in a single-income family?
The short answer is YES. It all comes down to budgeting.
Here are 7 effective tips on how to save money when you live paycheck to paycheck.
- Implement the Cash Envelope System
This “old school” budgeting method was made famous again by Dave Ramsey. It uses the psychology of people spending less when it’s using cash compared with using other cashless methods.
I know this sounds a little backwards in the nearly cashless society we are in today, but if you want to save money while living paycheck by paycheck, the cash envelope system will force the discipline of your spending within a budget.
Let me explain…
You identify the expense categories from the “NEED”, i.e. things and activities are nice to have but not necessarily have to have. For each cash envelope assign an expense category. Depending on your spending goal, allocate the cash for that category for the month (or the week).
The key here is to only spend the cash out of these envelopes for the specific category until the next cycle.
Below are a few NEED expense categories you can track:
- Eating / Drinking out
- Entertainment (Movies, concerts etc.)
- Personal care / beauty
For us, eating out can easily make a big dent in our monthly budget, implementing these clever strategies can save you money while eating out.
- Save on your groceries
One of the biggest areas where you can really save a lot of money is in your groceries. Especially if you are in a bigger family, grocery bills can be a big chunk of your monthly expense.
Doing your meal planning and grocery shopping on a weekly basis will avoid multiple trips to the grocery store throughout the week. You are less likely to buy more food, and reduce fuel costsas well.
Another effective way to drastically reduce your food bill is to try to shop at Aldi. When I made the switch a few years ago, my weekly food bill went from an average £130 to below £100. That’s £1560 saving a year!
Head here to get more tips to save money on your groceries.
- Save on your energy bill
Another area that you can cut down is on your energy bills. This is likely to be one of the highest expenses, especially in these cold winter months.
The electricity villains in your house are the tumble dryer, ovens, kettle, and underfloor heating (if electric), which also means any electric heater! Find ways to minimise the use of these items.
- Reduce your subscription services
We seem to live in a subscription-based world, from amazon prime to Spotify, everything seems to be a “small” fee every month. But those small fees add up to a big sum for the year.
Many of these services also have a lower fee for the first month or year, then it automatically renews to a much higher price.
Having a budget tracker will really help you to highlight those expenses and ask yourself: is this a NEED or want?
I am completely guilty of this myself. When I finally canceled my audible membership of 3 years, I realised that I’ve just paid nearly £300 for a handful of books!!!… and the security of having the service.
- Kids entertainment /activities on a budget
Visits to the zoo, soft play, going to the movies etc, kids entertainment and activities can be expensive. Especially if you have a couple of children and do these activities on a regular basis.
The truth is, kids don’t NEED all these expensive activities to be happy. Instead, they need YOU.
A family bike ride, a treasure hunt, or an indoor movie picnic night are just a few ideas that don’t cost you a penny but are guaranteed fun.
I’ve compiled 110+ FREE activities for families (indoors and outdoors) to have fun while on a budget. Enjoy!
- Date night at home
Having a healthy relationship with your partner takes on-going work, however, this doesn’t mean you have to constantly throw money at it.
During the lockdown, my husband and I were forced to be creative when it comes to date nights. We cooked together while dancing to our favorite Jazz, we did take out night after the kids went to bed, and we did DIY projects… We had so much fun together without spending a huge amount.
So if you are living on a tight budget, focus your date nights on spending time together doing something you both enjoy, or achieving something as a team.
- Increase your income
Budging is all about the simple equation of what comes in and what goes out. While we spend lots of time on ways to reduce what goes out, don’t forget, you can also find ways to increase what comes in.
Ways to make money fast – scanning receipts, taking video surveys, and secret shopper are just a few ways you can make some cash on the side. These are simple to do and a great way to supplement your monthly budget, but it won’t make you rich.
Alternatively, there are ways to make passive income. These require more up front effort and investment. But once it’s set up, you can be making money while you are asleep. The earning potential can also be big, even replacing your 9 to 5 job.
Selling printables on Etsy (like this budget planner) is one of my favourite ways to earn passive income. You don’t need any experience, as long as you are willing to learn and be patient, anyone can do it!
Final thought on Beginners Guide of How to Budget UK
Starting to budget is the only way for you to take control of your money, especially if you are living paycheck by paycheck.
If you are a beginner, make sure you keep it simple. A template can really help you with that.
Remember, the best budget is what works for you! Once you start to make it a habit, financial freedom is only a short step away!