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How to budget money

How to budget money
Image source: Getty Images.

Looking to budget your money more effectively? In the long run, saving even small amounts each month can really add up and may help to improve your financial future.

Of course, budgeting is not always easy. It can be difficult to get to grips with your current spending in order to save money each month. However, by putting in place a simple but effective plan and using a number of tools to make things easier, it may be possible to reach your savings targets in the long term.

Read on to find out more about how to budget and meet your financial goals. I suggest the following 3 steps.

1. Work out your income and expenditure

The first place to start when seeking to budget effectively is to work out your monthly expenses. This can be done through checking your bank statements or, alternatively, using online banking apps.

It may be useful to categorise your spending into buckets such as ‘travel’, ‘accommodation’ and ‘food’. Doing so may help to identify areas where you are spending more than you need to, as well as providing ideas on where there may be scope to reduce your spending.

Once you know how much you spend each month, compare the amount to your monthly income after tax. This will show how much you are currently saving. For many people, the difference between their income and expenditure may be relatively small. As such, they may be saving less than they would like to each month.

2. Plan to save money

One way of reducing your spending in order to save more could be to establish a number of savings goals. For example, a goal could be to save a deposit for a home or the cost of a new car by a specific date. Setting goals may help to provide additional motivation to save, since there will be a reward should you meet your savings goals.

Once you have savings goals and a time period for their achievement, you can then determine how much you need to save each month.

Using your list of monthly expenses, you can then determine where spending may be reduced. Clearly, some costs will be easier to cut than others, but even reducing a few different areas of spending by modest amounts could add up to a surprisingly large amount of savings each month.

3. Make it easier to achieve your saving goals

Once you know how much to save each month, it may be a good idea to set up a direct debit for payday. This will reduce the temptation to spend all of the money that is available within your current account each month.

Similarly, using mobile apps such as Chip or Money Box could be worthwhile. Chip uses an algorithm to calculate how much it thinks you can afford to save each month, with the money being withdrawn from your account into a savings account at regular intervals. Money Box rounds up your debit card spending to the nearest pound and invests the ‘loose change’ in the stock market.

Paying your savings into an account that offers a competitive rate of interest is a good idea. Comparison sites such as The Motley Fool can provide help with finding the best savings accounts on offer at a particular time. Switching bank accounts to achieve a higher rate of interest could help you to meet your savings goals more easily.


Budgeting is never easy; however, breaking it down into a number of small steps can help make the process more manageable. Having savings goals and using direct debits as well as mobile apps may make budgeting easier. 

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