Budget – why and how to start one

You’d think it would be great in managing a personal budget – I work with budgets daily as part of my job and do pretty well there. But somehow for a very long time the habit of planning what to do with the money failed to establish itself in my outside-of-work reality.

In this post I am going to cover the very basics of budgeting along with a couple of simple he budgeting guidelines I follow.

But why have a budget? A lot of people think that budgets are limiting and prevent you from enjoying your money. The phrase ‘I’m on a budget’ does not have a positive colouring and my guess is that if you worked hard for your money, the last thing you want is something or somebody prohibiting you from using it Except, a budget does not mean that you can’t  enjoy your money. It is simply a tool to detail your financial decisions and make your money work for you, not the other way round.

In Dave Ramsey’s words “A budget is just a plan for your money”. You should be in charge of that plan!

But how to start?

Before you actually make your budget, it is worth going through 2-3 months of your bank statements (if you have them) to see exactly how you spend your money. Note the key spending categories down and how much goes towards them – how much do you spend on rent/mortgage/housing? How much is every one of your usual bills such as water, electricity, mobile phone? How much do you spend on eating out? Do you pay for a gym membership? It’s fine if you have five regular expenses noted down, it’s also fine if you have twenty. The key thing with this first step is that you find out how much you actually spend on things during a single pay period. I am on a monthly salary, so for me that pay period is a month. For costs paid annually (insurances, Christmas costs etc), bi-annually or quarterly, divide those bills to see how much you need to put aside to cover them in every pay period too.

Once you have all your expenses listed out, list out your income too. Whether you have one full time job or 10 side hustles, see how much you are making and take a note of that number. With your expenditure and income at hand, you can start putting a budget together. I am including an excel sheet which you are more than welcome to use (it is my monthly budget template) and edit as you see fit. But you can write a budget on a piece of paper too and it will work just fine.

Step two of your budget will involve some prioritisation of expenses. Take your spending categories list and give it an order. What you want to see on top will depend on whether you are in debt or not:

In debt Debt free/building wealth
1.       Your house and associated bills 1. Savings
2.       Food & household necessities 2.  Your house and associated expenses
3.       Getting around (this can be petrol, travel card, bus pass etc) 3.  Your house and associated expenses
4.       Personal spending such as going out, clothes etc 4. Food and household necessities
5.       Debt payments 5. Getting around (this can be petrol, travel card, bus pass etc)
6.       Things you can live without for a while such as gym memberships, cinema cards, cable TV etc 6. Personal spending such as going out, clothes etc
7. Things you can live without for a while such as gym memberships, cinema cards, cable TV etc


If you are a person of faith, the very first thing that might appear in your budget above item 1 in this table is a tithe or charitable giving. Use your own initiative with this and remember that generosity breeds generosity.  I tend to offer time and effort instead of cash, which also counts.

You should now have some sort of a list with your spending in order. Next to each the items, put down the amounts that you have been spending during a pay period in recent months. Is your money going where you want it to be going? If it isn’t, the budget is your chance to plan where it goes better. One consideration of importance is whether your income ties in with your expenditure. If you are spending more than you are making, you have two ways to act – either reduce your spending on non-necessary items OR make more money. I like to make more money but it’s not always an option.

Your next step will be taking your list of expenses and deciding, realistically, how much you would like to be spending based on how much you are actually making. Here are some simple guidelines to help you decide how to move forward.

Your house and associated bills:

Dave Ramsey, amongst other financial personalities, recommends that your mortgage or rent costs do not exceed 25% of your take home pay. If you live in a particularly expensive area, this could easily go up to 50% so if it does, move or get a pay rise (I’m not kidding). Keeping your house cost to 25%-30% of your take home pay or below helps to build wealth long term, it’s not just a number plucked out of thin air.

Everything else that is not debt, savings or charitable giving:

You want to be living on no more than 70% of your take home pay is what you will often find recommended, including rent or mortgage payments. This means that all your food, travel, phone and utility bills, clothing, going out etc must not exceed 40%-45% of your income. This value will get squeezed down tightly if you have a lot of debt or are saving aggressively.

Save or clear debt and give:

30% as a rule of thumb should go towards either savings or debt repayments. If you are in a lot of debt, this percentage might be higher if you are able to squeeze in the ‘everything else but’ category above. If you tithe, the tithe or give charitably, the funds will come out of this bucket. I’d suggest 10% giving to 20% saving ratio but do what works for you. In my case this category equates to around 50% of my income, with some aggressive saving and mortgage payments going on (more about this another time).

How do these percentages look like in my financial life right now?

House costs = 26.5%

Living costs = 13%

Saving and debts = 14% into aggressive mortgage repayment, the rest (53.5%) goes into various savings, including 15% into retirement account.

The picture these percentages paint has not always been so rosy, not to say that there wasn’t a picture at all since I had no clear grasp on where my money was going to.

The final step of your budget is to reconcile it against your spending at the end of every pay period. This is an important habit to develop as without it your budget will not tell you whether it is actually working. So take a note of your expenses as you go and see whether you have allocated your money correctly or if some of your categories do not stack up to reality. It might take few months until you get it right, but with practice it becomes easy enough.

Here is how my budget looks like now. I am including some of my income figures, but not all.

In addition to showing you my overall budget, I am also including a Monthly Budget Template which you can use for yourself. The file contains some basic formulas to help you define savings goals and reconcile spending but you can write your budget on a post-it just as well as long as it means that you start telling your money where you want it to go.


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