How to create a budget and manage your money

Discover Lowell's guide to budgeting, using our budget calculator and top tips for budgeting to help you get control of your finances and clear your debt.

Budgeting can help you see exactly where you’re spending money, which makes it easier to evaluate your finances and make sure you can cover all the things you need to pay for.

If you have debt, learning how to budget can help you to work out how much money you can reasonably afford to pay each month towards clearing your debts, helping you work towards becoming debt-free sooner.

We’ve put together a helpful guide to creating a budget and some of our top tips for budgeting. If you’re looking for somewhere easy to get started, check out the Lowell budget calculator, designed to help you create a personal budget and make budgeting easier.

How to create a budget

Understanding your budget is a positive step towards controlling your finances. If you don't look back on your spending, it can be easy to not really know where your money goes. Creating a personal budget can also help you to spot where you could be saving money, by showing you areas to cut down spending.

In order to create a personal budget, you'll need to know your average monthly incomings and outgoings. When you start learning how to budget, you'll need to look at your wage slips, benefit statements, bills and receipts to work out exactly what you've got coming in and going out.

Work out total incomings

First, add together all the income you get each month. This should include everything, including:

  • Wages
  • Benefits and tax credits
  • Pensions
  • Regular money from friends or family

If any of these are paid weekly, you'll need to work them out for a calendar month instead to make your budget easy to calculate. To work out the calendar month total, multiply any weekly income by 52 and divide by 12. If you're using the Lowell budget calculator, the calculator will do this for you automatically.

Work out your total outgoings

To find out how much you have available in your budget, start looking at your outgoings. Use bank statements or paper bills to work out exactly how much each of these cost you each month. Some of the regular payments you'll make might need to include:

  • Mortgage or rent
  • Council tax
  • Utilities like electric, gas and water
  • Loans or credit payments
  • TV license
  • Court fines, child maintenance or CCJs

If your utilities are on a meter, try to keep track of how much you spend on a monthly basis so you can work out an average cost. You'll then need to look at regular outgoings, like food and housekeeping, transport costs, childcare costs and more. It can be helpful to look at receipts to work out your rough average monthly spend. If you don't have receipts to work from, that's okay. Try keeping a spending diary this month and write down everything you buy, and keep receipts so that you can work out a more accurate budget next month.

If you're not sure what to include in your outgoings, try the Lowell budget calculator, which will list everything for you - you'll just need to know the weekly, fortnightly, 4-weekly or monthly figure.

Factor in annual costs

Don’t forget to account for annual costs that only come up a few times or just once a year, like birthdays and Christmas. If you don’t budget for Christmas, it can make the winter months financially difficult and stressful. If you’re in a position to put money aside, add a saving each month for these annual costs to your budget. Things add up over the year, and if you manage to save £2.50 a week, come Christmas time, you'll have saved £120.

Subtract your total outgoings from your total incomings

Once you've worked out all your outgoings, take them away from your total incomings. The Lowell budget calculator will show you this in a clear and helpful summary, showing how much you need to spend on priority bills and regular expenditures. What you have left is your disposable income. If you're working with Lowell on a payment plan, you can use this figure to work out how much you're comfortably able to pay so that you can work towards clearing your debt.

If you don't have money left, you have a budget deficit. You might need to look at where you can cut back, or find potential savings by shopping around. You could save by comparing different insurance costs, or by switching your weekly shop to a different supermarket.

Just remember, if you switch providers, make sure you're not breaching any contract conditions, or you may end up being charged. For more on how to live on a budget, check out these helpful guides from the Money Advice Service and Money Saving Expert.

Budget Templates

There are plenty of excellent budget templates available online to help get you started with your personal budget.

If you're working with Lowell, our budget calculator is a really good place to start. If you're just starting out with learning how to budget, our calculator will help. You won't need to do any calculations or working out. You just have to enter your average incomings and outgoings and the calculator will show you a summary of your finances, including how much money you've got left at the end of the month.

If you need to set up a payment plan towards your debt, our budget calculator can help guide you on how to budget, and what might be the right amount for you to pay. Remember, it's always up to you how much you pay and how frequent your payments are.

If you want another budget template, we recommend looking at examples from supportive independent organisations and charities like StepChange, who have a basic budget template available. If you have access to a computer that can use spreadsheets, you might want to use options like Money Saving Expert’s free budgeting spreadsheet, which also links to helpful money-saving articles throughout.

Budgeting Tips

Learning how to budget is a learning curve, especially if you’re not used to it. Here are a few key budgeting tips to help you, and important things to remember as you’re beginning to budget.

Have a financial goal to work towards

One great budgeting tip is to decide what your main financial goal is. That might be clearing your debt. Having something to focus on will make it easier to save each month, because you know what you’re working towards.  

If you don’t have a main goal, if you’re able to, put money aside for an emergency. Even a little each month can help, and it’s always helpful to have a financial ‘cushion’ in case the unexpected happens.

Don't remove everything that makes you happy

It might sound like the reverse of a budgeting tip, but it’s important not to remove everything from your outgoings. When you look at your budget, if you have limited disposable income it can be easy to simply slash monthly expenditures on things you enjoy, like days out or social events. But if you don’t have something to look forward to, you may lose motivation to stick to your budget.

It’s important to find a balance between enjoying what’s important to you and saving your money. If there are things that really make you happy, like a hobby or going to a concert, set a little money aside as a monthly cost so that it’s not a large one-off expense that causes strain on your budget.

Don't feel bad if you struggle!

If you haven’t used a personal budget before, or if you’re just starting out with learning how to budget, it might take time to get used to it. If you struggle with your budget, either with creating it or sticking strictly to it each month, don’t feel too bad.

If you try something for the first time and don’t succeed, it can affect your confidence. But if you’re cutting back and making sacrifices to stick to your budget, that can be a hard thing to do, so cut yourself some slack. You’re taking control of your finances, which is a huge step towards financial freedom and clearing your debts.

Creating a budget is a positive first step on the journey to becoming debt-free. Lowell are here to support you every step of the way with our budget calculator and helpful information in our debt guidance hub and on the Lowell blog.


Published by Libby Davies on 20th May 2021