How To Budget Your Money When You Don’t Know How

You and I both know a budget is important.

Yet you’ve put off the task of learn how to budget your money, even though, deep down, you know you need to stop faffing about and JUST DO IT.

You’ve been putting if off for like forever, because you know, you don’t need a budget, they don’t work and all that.

And I understand why you might think that.

For many people budgets are boring, they’re restricting, they tell you what you can’t have.

Times change, people change, and budgets CAN help you save money and pay off your debts.

As a frugal soul I don’t do fancy, schmancy, budgets.

I do plain, simple and effective.

I am going to show you how to create a budget plan that works for you.

One that focuses on what you can have, not what you can’t.

Come and follow me on Pinterest for more money saving hints and frugal tips!

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Living Budgets

Today we are talking living budgets, one that helps you on your journey to becoming frugal, debt free and with savings in the bank.

A living budget in it’s simplest terms is a plan of what money you have coming in and what you plan to spend it on each month.

Being frugal, your budget is about spending within your income so you don’t overspend and never run out of that month’s money.

And you have money banked for future expenses.

Other Budgets

There are different types of budgets you can create.

Mine is loosely based on the zero budgeting method, which just means that you are going to budget all your money – give every dollar a job to do – so there is zero left.

Then there is the 50/30/20 budget.

If you don’t know it, the 50/30/20 budget basically says you should allocate 50% of your income on needs, 30% on wants and 20% to savings.

I am not a fan of this budget.

The problem I have with it is that this presumes that you can cover all your needs with just 50% of your income!

Wouldn’t that be nice!

And 30% of your income on wants is very, very luxurious in my view.

20% into savings is a decent figure if it’s something you start doing from your early 20’s and continually do throughout your working life.

But who saves 20% of their savings, and keeps doing so without any gaps?

Not many.

budget paperwork with numbers, a calculator, coins and a metal colored pen - to show how to budget money

Benefits of Budgeting

Budgeting brings with it many benefits. The better you can get your budget, the more benefits it will bring.

Benefits of budgeting include:

You have less chance of going into debt – because you know exactly what you can spend

No unexpected costs derailing your finances when you plan out your money.

You find ways to make savings when the budget is a bit too tight overall (if this is you then I strongly suggest you start by looking at your grocery budget, there’s always wriggle room there).

You are in a much stronger position to achieve your money goals because you know where your money is going

Sleepless nights worrying about money become a thing of the past.

Overspending Hurts

Do you currently spend more than you earn? Ouch.

Constantly overspending leads you down the road to debt and money problems.

And that might be exactly why you are here today.

Because mastering how to budget your money gives you a jump-start on paying off those debts.

vecta of money spelled out on wooden blocks and driftwood background

How To Budget Money On A Low Income

It doesn’t matter whether you have a good income or a low income, when you learn how to budget money it follows the exact same steps. You plan out your money ensuring you don’t run out of it.

So don’t think being on a low income means you can’t budget properly, you can.

In fact I think it is critical to budget when you are on a low income because every penny you earn needs to pull it’s weight and help pay for something.

Your Outgoings

Some of your outgoings are essential: rent and utility bills for instance, but other spending is more flexible and discretionary.

You have choices over what and how you spend this money. Some of those choices you may have made some time ago.

Choices such as taking our new car finance or over spending on your credit card. Now they are are essential spending because the decision is made and decisions have to be paid for.

In future you may make other choices, ones that don’t end up being essential spending.

The best types of budget help you to spend without feeling guilty.

You won’t regret your spending when you live a frugal life using your new living budget.

man completing paperwork on low table with calculator

How To Budget Money

Getting Started With Your Budget Plan

Before you get any bills out or your calculator you need to have a think about what you want.

What do you want to achieve with your money?

What you want to save for? Don’t say ‘I don’t know how to save money! We’re going to fix that!

How do you want to live?

These thoughts are all about your financial goals. Knowing your goals will allow you to create the right budget for you to achieve those goals.

Budgeting goes way beyond just spending what you earn today.

Budgeting is about planning your future, paying future bills not just today’s.

Your budget today is going to be focused on your goals.

Make your goals an essential part of your budget and everything else will fit around them.

If you don’t prioritize your goals, you’re not really living, you’re just surviving each day.

Goals are what you strive for, are willing to go the extra mile for. They are what makes having a budget worthwhile.

Your goals might look something like this:

  1. Pay off debt
  2. Start saving for retirement
  3. Save for a vacation

You need to make your goals specific so not just pay off debt but for instance, pay off $200 of debt each month.

So the above goals change to something like this:

  1. Pay off $200 of debt each month
  2. Start saving $100 for retirement each month
  3. Save $50 every month for a vacation

These are just examples of how you would structure your goals.

I am not suggesting that $100 a month is enough to save for your retirement and nor does $50 go very far on a family vacation.

But if that is all you can afford this month, then set those goals anyway.

You can bump up the numbers in the future.

Remember: Goals = Essential Spending

$1 button in red on old fashioned cash register - to show how to budget money

How To Budget Money – Step 1

To create a budget you need to know what you are working with.

How much money you have each month that needs to be given a job to do.

So the first step is work out how much money you have coming in every month.

This will include wages, side hustle money, benefits you might receive (e.g. child benefit in the UK), bank interest on any savings you might have.

Go through your paperwork and payslips and write down exactly how much money you earned and brought in last month and what you will be earning in total this month.

So right there you know the absolute maximum amount of money you have to spend, not a penny more.

Because more means taking on debt.

And you are done with getting more debt.

Download my budget spreadsheet. It will help you work through these steps and ensure your budget is bang on for you. You can find it in my resource library.

Blank living budget template with budgeting categories

Budgeting Step 2

List out all your essential spending and how much each one is.

You can find this through pulling out your bills and checking your bank and credit card statements.

Your statements will show you your automated bills going out. Add them to the bills that you have pulled out that you pay manually.

Essential spending is only your absolute basic costs so will include:

  • rent/mortgage
  • utility bills (of course you can reduce how much you have to pay by careful use of your electricity, gas and water)
  • Loan payments already set up (longer term you will want to get rid of these and save up to pay cash for big ticket items)
  • insurances (house, car, medical)
  • Your financial goals as above


Essential Spending Not Rigid

As you can see, although essential some of these bills are not set in stone.

You have to pay your utility bills but how much they cost you can be changed depending on how you use energy and the like.

Loan payments are not forever.

Once the loan is paid off you have more money to plan and more money to help you achieve your money goals.

How much income should go on bills?

Here’s the thing, everyone is different and is at different stages of their financial lives.

I can tell you when I was in my 20’s, my bills, the essential ones in this first category probably amounted to something like 80% of my income.

Fast forward to now, with no mortgage to pay, no loans and no childcare costs, my essential bills are a much smaller % of my income.

I have less money coming in but less going out too.

Budget Plan Step 3

Step 3 is about seeing how much money you have left after you have budgeted for and paid your essential spending.

For this step all you need to do is deduct your essential spending from your total income.

Basically step 1 minus step 2 = step 3

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How To Budget Money Step 4 

Now write down all the other spending you make each month but don’t put any amount to them just yet.

Your bank and credit card statements will tell you exactly how much you spend.

Make sure you include the cash you have withdrawn from ATMs even if you can’t remember what you spent it on.

This other spending is non-essential spending i.e. it doesn’t fall into your essentials category above.

Non-essential spending will include:

  • Food
  • Travel costs
  • Clothes
  • TV package/cable
  • Entertainment
  • Eating out
  • Holidays
  • Education
  • Beauty/grooming
  • Gifts
  • Cash withdrawn and spent
  • And many other things no doubt!

On one level some of these could be viewed as essential but the level of spending on each of these is very flexible and will be very different for each of us.

patterned pink old fashioned clip purse with coins spilling out on a white background

Your Grocery Budget

Of course you need food but what food do you buy and could you buy it cheaper?

If times are hard and you have a lot of bills to pay or you want to focus your spending on your future goals then your grocery bill is an area you can save money on.

You could live on rice and beans every day and cut your grocery bill to the bone (not that I am suggesting you do this!!)

These posts have some great ideas on how to reduce your grocery spending:

10 Simple Reasons Your Grocery Bill Is So High & How To Cut It

When Money Is Tight, How to Enjoy A $35/£30 Grocery Budget For 2


Everyone needs clothes, but do you really need any NEW clothes?

And if you need new clothes does it need to be new or just new to you?

You could buy clothes from charity shops/the thrift store if you NEED clothes.

Your list of non-essential spending should be quite long because it includes everything you ever spend money on that isn’t on your much smaller essentials list.

And it can be quite eye-opening going through your statements to see just how many times you popped out for a coffee or something to snack on.

money bills spread around with notepad and orange and white flowers

Budgeting Step 5

Now you have a complete list of non-essential things – things that you choose to spend your money on, you need to decide what you actually want to spend your money on.

Because there is a difference between what you do and what you actually want.

And that is where debt happens.

Remember your financial goals and why you want to budget today?

Keep these thoughts in your mind and decide for each of your non-essential categories how much you WANT to spend.

You have a finite pot of money. You can’t spend more than you have coming in each month.

It’s down to you to choose what you want to spend your money on.

But only to the point of the total money you actually have coming in.

Does spending $150 every month on eating out mean more to you than the financial goals you have for your future?

Because that is the type of decisions we all have to make when we create our budget plans.

For some reason none of us ever have enough money for everything we would like in our budget.

Not at first, not when we’ve been used to overspending or we’ve got debt payments to cover.

You are going to find that the money you have coming is not enough for what you think you want.

Sorry about that.

So you need to re-think what is important to you.

Oh and remember, if you are currently paying $400 in car payments or loan repayments, that’s $400 you could be spending on other things once you’ve paid off those loans.

But only if you don’t take out another loan! Your choice.

You have finished your non-essentials budget once all your money has been allocated somewhere.

And of course you can’t have a minus figure.

You are aiming for zero.

So all of the money you earn has found a home to be spent, somewhere within your budget.

red flowery teapot and cup and saucer with 2 dollar bills under the saucer

Budgeting Step 6

Your budget should now look something like this:

Total income = X

Essentials = Y

Non-essentials = Z

X – Y – Z = 0/zero/nil/nada

Congratulations! You now have a living & frugal budget that is going to work for you.

You have decided what you want to spend your money on and how much.

Now you are the decision maker and as you can see you could choose to make different decisions.

But you’ve made your based on what you want to achieve with your money in the future.

Remember this. Your decisions, your budget.

You can spend according to your budget without regrets or guilt.

pale pink rose in glass of water with twine wrapped biscuits on top of a vintage book

Future-Proofing Your Budget

Unless you are brilliant at budgeting, and I would hazard a guess you probably aren’t quite that yet, then this budget is just your first one.

There will be others. As the months go on, your debt goes down and your budget plan will need to be tweaked.

Because you will know your spending better.

Irregular Bills And Costs

We all have irregular bills and costs that pop up.

They can be expected and unexpected, but the fact remains they need to be paid for.

Because they are not a regular monthly cost you could be forgiven if they don’t make it onto your budget spreadsheet.

However they do need to be there. But how?

By creating separate money pots or sinking funds and including these in your budget.

These funds are in a separate account and get added to each month.

When an irregular bill comes along you use the money in that account to pay for it.

So your budget needs to have a category for sinking funds.

For all the information you need on these check out my post that details what they are and grab the free trackers in my resource library while you’re there.

Sinking Funds For Beginners: What You Need To Know

Tracking Your Spending

Education, education, education they say. Education helps you make informed decisions.

So if you can educate yourself on your spending habits, to the point that you are a master at it.

Then you become your own expert who can use that information to create a monthly budget plan tailored exactly to your circumstances.

And how do you do that?

By tracking what you spend. Or put it another way.

You want to write down every time you spend on something so you can see what you are spending.

Writing down what you spend helps you to build up a really detailed picture of your spending habits and is often extremely revealing.

It’s amazing how we can fool ourselves, thinking we don’t do much of something.

But your spending tracker will leave you no place to hide!

You can track your spending in different ways to suit you.

Paper based, excel based or even a budgeting app. I

t’s about what you are tracking, not how you do it.

In my free resource library I have a spending tracker you can download to get started today.

Write down every penny you spend. Ideally do it daily. Definitely at least weekly.

And review it every month to see what your spending and habits are telling you.

I can tell you mine were a bit of a shocker!

Firstly, I knew I might pop to the grocery store a bit often than once a week but had convinced myself it was only about 3 times every two weeks.

Ha No! More like 3 times a week if not more.

And how about how often I popped to the corner store for some chocolate?

How could I not know it was like 4 times a week?

Your spending tracker highlights your spending.

Do it for at least a month and use the information it tells you to make your budget even better.

gold piggy bank with a pink watering can sprinkling cartoon water on cartoon young plants atop piles of coins to show how to budget money

Budgeting Your Money For Success

Everyone needs a budget.

You need a budget.

One that works for you and helps you achieve your financial goals and pay off debt.

Learning how to budget your money is just the start of your new relationship with your money.

Continuing to invest time in understanding your money and spending habits through tracking your spending and tweaking your budget will make a huge difference to the success you will have with your money goals.

Oh and please, don’t give up after a few weeks.

I think it took me about 10 years to get a proper budget going.

Surely you can do it much quicker than that?!

For more solid money advice on getting your finances organized and in tiptop order have a read of these posts:

How To Manage Your Finances – The Best Ways For 2020

How To Manage Money As A Couple: 9 (Successful) Strategies

The Best Money Habits To Transform Your Wealth And Happiness

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Last Updated on 5th April 2023 by Emma

About Emma

I'm here to help you become confident in making the best money decisions for you and your family. Frugal living has changed my life, let me help you change yours.

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