How to create a budget to save money

There’s no two ways about it. You can’t be in control of your money and make the most of it without creating a budget.

This is true even if getting into consumer debt isn’t a risk for you because you earn much more than you spend. If you don’t have a budget then you can’t make the most of any surplus money, through saving for specific experiences, paying off a mortgage or putting the money into investments.

In this blog post I will take you through a simple method for creating a budget and managing your money on a monthly basis. It’s a zero-based budget method and I personally like to use a spreadsheet, an app and my credit card (which I pay off every month) as for me that’s the easiest and most time efficient way to keep in control.

A quick note on credit cards: I only use a credit card for things that are in my budget and that I know I can pay off in full every month. If there is any risk for you that using a credit card will mean creating a debt that you can’t pay off every month then I would not recommend using one. Instead, using a debit card or a cash envelope system might be better. You can get some very cute free cash envelope printables and some great advice from The Money Fox.

Starting a budget for the first time

I started budgeting when I first went on maternity leave because I wanted to make sure I could afford to take the full year off. As income during maternity leave varies, I knew I would have to save a particular amount in the first few months to subsidise the months at the end of the leave. So, I needed to figure out what my shortfall was going to be so I could save that amount at least. I started a few months before my leave.

I’ve stuck with the budget since returning to work because it gives me visibility of my “fixed costs” every month. As I put all of my “variable costs” on a credit card (which I pay off in full) I then know at the start of the month exactly how much I can afford to save.

Creating a budget template

I use a spreadsheet for my budget and cover the full year. For a free copy of the budget spreadsheet I use, put in your email address below:

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In the first column I list my income and expenses.

My income is broken down into:

My Income (day job)
Partner’s contribution
Rental property income
Child benefit
Side hustle income
Total income

For our costs, these are broken down into the following categories:

Rental property costs
Holidays and hobbies
Total spend
Difference (income minus spend)

Each cost area is broken down into separate costs, so in Household you would find Mortgage, buildings insurance, etc:

Buildings insurance
Council tax
TV license
Factor fees
Window cleaning
Factors fees

I then create a column for each month of the year and put in the formulas below in the total income, total outgoings and difference cells, ensuring I am pulling in information from the right cells.

January (column B)February (column C)
My Income (day job)
Partner’s contribution
Rental property income
Child benefit
Side hustle income
Total income=sum(B3:B7)=sum(C3:C7)
Buildings Insurance etc….
Rental property costs
Service charge
Maintenance costs etc…
Total outgoings=sum(B11-17)=sum(C11-C17)

Filling in the budget

Using my bank statement or banking app as a guide I then put in all of fixed and variable costs. For example, fixed costs are things like mortgage/rent, energy bills, commuting costs, etc.

For variable costs, such as food, I’ll put in an average of the last few months of spend.

Then I have a column for each month in the year which allows me to put in costs that occur every year or a few times a year. Taking car tax as an example, if I know that I won’t be able to cover the car tax with my income that month, I’ll split the cost over the year and put aside a certain amount each month into a sinking fund for the car tax. I’ll then have a car tax sinking fund amount on my budget in the “Investment and saving” section.

I add up my income, and my expenses and then check if there is a shortfall.

If you have not done this before, this is the time to look at how to cut down on your fixed and variable costs to either cover any shortfall or increase your ability to save/pay down debt/invest. For more ideas about this, see my article on cutting household costs.

Then, if there is any money after covering fixed and variable costs, I split this between mortgage overpayments, investments and savings. As I take a “zero based budget” approach, I aim for nothing to be left over in my total for the month.

Tracking against budget

I set up monthly direct debits for all of my fixed costs and I use the Money Dashboard app to tracking my actual spending against budget. This is particularly helpful for the variable costs, such as food, because you can tag each transaction and track your spending throughout the month.

I use my credit card for all of my variable spending. Unfortunately the link with my credit card is not working at the moment in Money Dashboard as banks are taking some time to get set up for “Open Banking”, but this would work fine if you use your debit card for everything.


Come pay day, I take my income, then subtract all of my bills (which come out of my account each month), my sinking fund amounts and my credit card bill due that month, and this gives me the amount left that I can save. So, even though my budget tells me I can afford to put £200 to savings, if actually the previous month I have underspent on my variable costs like food, I’ll have more to put to savings. By having the budget though, I know what my limits are for my variable costs so that I can aim for a certain amount for savings.

I then move over the amount I have left for savings (or debt, investment, or mortgage overpayment). I also move over my sinking fund amounts.

Here’s an example. Say I make £2500 a month and have no other income, I know (from my budget) that the fixed costs that will come out of my month are £1000. I also know that I want to put £50 towards my Christmas fund and £10 towards renewing home insurance later that year. Finally, I’ve already received my credit card bill for the previous month, which was for all of my other spending and was £750.

So to calculate how much I can save I work out:

£2500 (net salary) – £1000 (fixed costs) – £60 (sinking funds) –£750 (credit card bill due for all other spending) = £690.

I then transfer the £690 over to savings and £60 to my sinking funds (in separate savings accounts or pots). If you might need to access some money during the month you can also keep a buffer in your account, for example to withdraw for something you need to pay in cash.

Making it work

Budgetting methods are a very personal thing. Some people find they spend less if they pay in cash and can see the money, which I get. I personally find I spend less if I use a credit card because I don’t want to see a big bill the next month, when that thing I bought may not be so new and shiny any more!

Also, this system only works if I can cover my costs with my income. Sometimes a no-spend challenge can help to reset my spending as I take no spending as the baseline and it forces me to be more patient with purchases and find creative alternatives to buying things.

The other route to making your budget work is increasing your income. See here for ideas on side hustles and making the most of your day job to improve your career prospects.

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