By landing on this page, I’m sure you’re well aware of the power a good budget can have on your success, no matter what your definition of success is. Success can mean something different to everyone, although underpinning all of these goals is the need to learn how to create a personal budget to spend money effectively and keep track of where your money goes.
To some people, success is being able to go on holiday twice a year, to others, it’s getting that new car or even being able to retire early. This is unique to everyone, and understanding why you’re starting a budget is the most important step to ensure you stay motivated and stick to it for the long term.
There are many things preventing people from starting a personal budget, from not knowing how, thinking it’s too much work, or even completely ignoring the situation and hoping for the best.
I’m here to help.
Why You Need A Personal Budget
As a finance professional by trade, I do appreciate I’m somewhat biased in my opinion that budgeting is essential for everyone.
What is surprising to many people is that a well-designed budget can actually help you spend more money on what you love and enjoy. By focusing on reducing how much you spend on things you don’t get value from, such as utility bills, you can then reallocate that money how you please.
This can be anything from new clothes, holidays, or a phone upgrade, the choice is yours. By doing this you not only make your money go further, but you’re also more likely to stick to your plan for the long term.
So if you make your budget align with your long term goals, you’ll give yourself the best possible chance of achieving them.
Below I’m going to cover everything from how to start a budget, which apps to use and essential tips to keep you on track, hurtling towards your goals.
Personal Budget Template – Spreadsheets vs Apps
As a finance professional, I bet it’s not too surprising to know that I love a good spreadsheet. However, when it comes to tracking your finances I am a firm believer that easier is better. The less time it takes to update and monitor your finances the more likely you are to turn it into a habit, which is when it starts to make a real impact.
In my opinion, spreadsheets and detailed finance trackers are excellent for tracking the finances of a company or for someone that is willing to dedicate a lot of time to monitoring their finances. Even me, the finance guy, don’t fall into this category, I want something that takes a few minutes to update and gives me a good overview with as little effort as possible.
Give the hardest job to the laziest person because they’ll find the easiest way to do it.Bill Gates
The above quote is one of my favourite quotes of all time, mainly because it resonates with how I view tasks, especially when it comes to budgeting.
This is where apps come in. Thanks to advancements in technology and the introduction of open banking, applications can now extract information directly from your bank and credit card company automatically and safely.
You no longer need to update a spreadsheet, daily, weekly or even monthly. These apps will help you detail all of your income and expenses automatically and also allow you to set specific monthly budgets for each category, but which is the best to use?
Best Personal Finance Spending Tracker App
For those that can’t imagine anything worse than using Excel spreadsheets in their spare time, not to worry, there is a multitude of apps available that do all the heavy lifting.
- Money Dashboard – (UK Only) – Free
- Emma App – (US, Canada & UK) – Free
- YNAB – (Worldwide) – Paid
- Yolt – (UK, France & Italy) – Free
Below I’ll go through each of these apps in turn and explain the positives and negatives of each.
Money Dashboard Review – (UK Only) – Free
- Ability to connect your bank accounts & credit cards for auto-syncing
- Excellent dashboard to see a full overview
- Planner feature to test scenarios
- Safe & secure
- Currently, a limited selection of investment accounts to sync with (many in development)
- Only available to people in the UK (but good for people from the UK!)
With more flexibility and control over settings, it’s understandable how it was voted Best Personal Finance App at the 2020 British Bank Awards. To get started, go to Money Dashboard here.
Emma App Review – (US, Canada & UK) – Free
- Safe and secure
- Free to start (ability to upgrade for premium features)
- Great visualisations
- Easy and quick to set up and use
- Not all features are free
- No comparison features to compare different periods, such as week to week or month to month to view changes in spending
Whilst the majority of the features on this app are free, if you prefer a more customisable experience you can upgrade to Emma Pro for £4.99 a month when you sign up for 12 months (£6.66/month for 6 months, £9.99/month for monthly).
Although, most people should be fine just using the free features, especially since the app is so intuitive and easy to use. If you wanted to get started, download the app here.
You can also read the Emma App Review here.
YNAB Review – (Worldwide) – Paid
- Focus on giving every dollar a job to prioritise your wants & goals
- Customisable and detailed budgeting recommendations and guidance
- Ability to set money aside for non-monthly expenses, eg holidays
- Free 34 day trial available to get started
- Safe & secure
- Expensive for a casual user (although less than Netflix!)
- A limited number of UK banks for pairing, although can sync manually
- Complicated at first, but the ability to speak one-on-one with a coach if needed
Whilst this software is the only paid application on the list, if you’re going to use it a lot, the recommendations & tips the app provides can help you gain control of your money. By budgeting all of your income you make sure that you set aside money for savings and enjoyment which can often get missed.
There’s a 34-day trial for you to test if the software works for you, so if you want to get started click here.
Yolt Review – (UK, France & Italy) – Free
- Safe and secure
- Weekly snapshots to give you more frequent oversight of your finances
- Stealth mode to help show your friends & family the app without revealing your personal finances
- Track bills function – see all your regular payments easily so you know where to focus
- Not all banks and investment accounts are able to be automatically synced
- Yolt’s recommended services aren’t always the best, although this is how the free app makes money – so aware that shopping around could be better.
As one of the first companies to offer a personal budgeting app, it was released without too much competition. It’s good to see Yolt still pushing forward with innovation, such as with their Stealth mode, Yolt Pay and still adding new banks and investment accounts.
Overall it’s easy to set up and free to use so definitely a contender for the best free personal budget app.
Best Free Personal Budget App
So with all the reviews above highlighting the positives and negatives of each, choosing the right one for you can be quite the challenge.
In my opinion, it really comes down to how much time you’re willing to spend within the app and how detailed you want to get with your finances.
For the vast majority of people, including myself, having a simple budgeting tool that once set up only takes a few minutes to update and review each month is essential.
This means an application, ideally a free one, that can:
- Sync with bank and credit cards
- Automatically update your transactions
- Categorise your transactions automatically with minimal intervention
This is why I recommend the Emma App when you’re looking for how to budget your money effectively.
It’s quick to set up and then pain-free to keep updated, which drastically improves the chances you’ll keep using it and helps you understand and control your finances. I know that’s definitely the case for me, and I’m supposed to love working with numbers!
You also have the ability to upgrade your account if you want to access the more premium features, although the free ones are completely fine for most people’s needs.
However, if you’re really wanting to get in control of your finances and properly understand exactly where your money is going and how to control it, then, in my opinion, YouNeedABudget (YNAB) is the answer.
It does come with quite the hefty price tag, although their philosophy of giving every part of your income a job, whether that’s assigned to a budget for food, or allocated to savings, really helps you know exactly where your money is going.
This does take a lot more time to set up and track, which is why I don’t recommend it for the majority of people, although will help your gain a complete understanding of your finances and help you plan ahead with excellent tips and advice from the platform.
How to Start a Personal Budget
Each of the apps follows some simple core logic, where you load in some of your previous expenses, usually by syncing your bank accounts securely through open banking. Then once you can see trends of how you spend money each month, you can then set specific budgets or targets for each spending category.
To start a budget, just choose one of the budgeting apps that is most appropriate for you, I recommend the Emma App.
They each have instructions that will guide you through the set-up process. Once you’re set up, the next step is to assign budgets to each category of how you are spending money now and how you plan to spend money going forward.
This part does require some thought as it ideally will align it to your goals and plans for the future, whether that’s saving up for a big purchase or putting money aside for retirement.
Make sure to give this post a read if you’re looking to set financial goals, when you know what you’re aiming to achieve it’s a lot easier to budget.
To start your budget you need to understand how you allocate your money into each area, broadly split into the 3 categories below.
- Cost of living expenses (rent, utilities, mobile phone, internet etc)
- Investments & savings – (pension, ISA, emergency fund, long-term purchases)
- Guilt-free spending – (holidays, gifts, enjoyment)
Below I’ll go through some helpful tips to help you understand how to budget to maximise the value you get from the money you have, or even how to get more of it!
Best Personal Budgeting Tips
Tip – View your spending in hours worked
I know this may sound stupid, but when speaking with people this has had a dramatic effect on how many people perceive money.
To do this you need to work out how much money you make an hour after tax. I’ll use an example from someone who works a standard working week, although you can be more specific if you know exactly how many days or hours you work based on your holidays or working pattern.
So using an average of 18.5 working days a month at 7.5 hours a day (37.5 hours a week), we have total working hours of 138.75 hours per month. Now, if you take your total monthly wage after taxes, so the amount that hits your bank account each month, you can calculate your hourly salary based on what you can actually spend.
Continuing this example, if they get £2,500/month after taxes, their hourly salary is £18.02 (2,500/138.75). For simplicity, round this to a memorable number, such as £18. Now when you make purchases, you can quickly work out how long it took you to earn that money.
When you frame your spending in this way, it will help you align your spending based on what you truly value.
You’ll be surprised how many things when thought about in this way you’ll say, that’s not worth 29 hours of my life! The key is to them remove or significantly reduce these costs and focus on what brings value to you, making your money go further.
Tip – Automate Your Finances (including savings & investments)
The discipline to consistently save and invest each month is one of the secrets of the rich. No matter how small the percentage of your income that you’re setting aside your pot will grow over time, and then compounding can work its magic.
Automating your finances effectively forces you to be disciplined and completely removes the thought process. This means once it’s set up once, you have to actively work to stop it instead of the other way round so the default aligns with your goals and future.
Once your savings and investments have been automated (you can still add to your investments on to of this which is always recommended!) the next step is to automate the payment of your bills.
With your credit cards, ensure you set up a direct debit to avoid any nasty credit card fees and having to remember to make the payment each month.
Then go through all of your regular expenses and work out whether they can be paid through direct debit or automatically through card payments. This can be anything from your phone bill to insurance payments.
You may even find discounts for paying through direct debit or setting up recurring payments through a card, they can be nice bonuses on top of your time-saving as it helps the company have less admin too.
To make all of this run like clockwork, the easiest way is to ensure you have at least 2 months worth of expenses in your main account. This will mean you never have to worry about not having enough money to pay your bills and allows you to have peace of mind knowing your bills are taken care of.
Then if you have any one-off purchases, such as a holiday or buying a car, you can transfer that money manually from your savings accounts that have higher interest.
Tip – Guilt-free Spending – Spend on What You Love
Guilt-free spending is definitely, in my opinion, a hidden wonder of the world and should always be incorporated into a solid budget. Guilt-free spending involves budgeting in advance for specific expenses that align with your enjoyment.
This can be anything from holidays, clothes, gifts, cars, that’s completely up to you. If you know what it is in advance that’s perfect, although if not you can just set aside 15-20% of your income each month to build up a pot that you can spend on what makes you truly happy.
When you budget in advance, it ensures that the cost isn’t a surprise, blowing your monthly budget and hindering your savings or investing targets. Also by waiting for a purchase until you have saved enough in your guilt-free spending pot you also have the added benefit of reducing impulse spending, helping to ensure you only buy things you truly want, harnessing delayed gratification.
Tip – Focus on the largest expenses first for maximum savings
There’s a common belief when people think about saving money that you need to cut out things like coffee and going out for a drink.
Often you actually get the most enjoyment out of the little expenses, whether that’s sitting down after a hard day and using your Netflix subscription, getting your favourite coffee before work or going out for a drink with your friends.
Don’t get me wrong, these little expenses can add up, especially if they’re done frequently. I myself am quite the culprit of spending a bit too much at the pub!
However, I’m here to tell you to focus on the largest expenses first as if you can reduce these, they have the ability to significantly outweigh any savings you make from cutting out the things you enjoy.
For the majority of people, the costs below are some of the largest outgoings.
- Mortgage Payments – Get Lower Mortgage Rates
- Negotiate Rent with your Landlord
- Reduce your Utility Bills (gas, electric, internet)
- Find Cheaper Insurance (car, house, phone, health, pet etc)
With each of these expenses, a small amount of focus, even once a year on reviewing and negotiating can yield some amazing results, so make sure to review these first.
Mortgage Payments – Get Lower Mortgage Rates
Mortgage payments are usually the biggest household expense for a lot of people. Just ensuring you remortgage once the introductory cheaper rate ends which are usually fixed for 2 to 5 years, can save you thousands a year.
This could be something as simple as taking your mortgage payments from 3.2% down to 2.2%, which on the face of it doesn’t seem like much and is why people often don’t focus on it. However, for every £100,000 you are borrowing you’ll save £1,000 per year, plus all the extra interest that accrues over the mortgage term.
Even if it takes you a few hours every 2 to 5 years, you could be saving £1,000+ per hour of work, quite the hourly rate if you were going to try and earn it instead! If you’re worried about your credit score, read this guide to get an excellent credit score and put yourself in the driving seat.
There are a ton of mortgage comparison websites available which will help guide you through the process and show you excellent deals, although if you have any problems, please contact a mortgage advisor.
Negotiate Rent with your Landlord
With rent, if you want to save money you need to understand what leverage you have and if that aligns with what your landlord wants.
Demand for living in the area is a major factor in your bargaining position. With the recent global crisis, demand for living in city centres has dropped significantly as more people can work from home and avoid paying the city premium. This is also true for a lot of commuter areas.
As a result, landlords are struggling to charge the rates they used to, so even a quick email or phone call can reduce your rent by £50/month or stop them putting the price up. Even a £50 per month saving is £600 every year which is huge.
To achieve this you may have to offer something in return. A lot of rental contracts are 6 to 12 months long, so if you know you are going to be in the area for more than that length of time, you could offer to sign up for a longer-term or pay 1 month in advance to help out their cash position if they need it.
Just be careful you understand what you are offering. For example, a longer term contract does reduce your flexibility so if you were to get a new job in a different area you may be responsible for finding a replacement tenant.
Although before you offer anything, first try and emphasise your qualities as a tenant. If you have a safe and stable job, excellent credit score, good referrals or a good renting history, such as staying in the last property for 2+ years, these are all things that a landlord is looking for in a tenant, so leverage them to your advantage.
Reduce your Utility Bills (gas, electric, internet)
These are often expenses that go under the radar where people think they are what they are and can’t be challenged or reduced. I’m here to say that’ll you’ll be surprised how much you can save very quickly.
Switching gas & electricity is quick and easy and can save you hundreds each year. You can also save even more when you switch through a cashback, for example, using Uswitch through TopCashBack you can £35 for free on top, not bad for an extra few seconds of work!
You can also do exactly the same thing for switching your internet provider with even bigger switching bonuses, just make sure you get paid to switch and save even more money!
Find Cheaper Insurance (car, house, phone, health, pet etc)
As most of these policies have to be renewed every year, just doing a brief amount of shopping around can yield some amazing savings.
Comparison sites have changed the game in the insurance industry. Signing up for a quote for insurance can be a painful process, with tons of questions doing more than a handful to compare different companies was a whole afternoon of a job.
Now you can compare hundreds of companies in a few minutes. You can even get quotes from multiple comparison sites to compare even more companies. This all equals more savings in your pocket.
Below are the top 3 comparison sites:
- Compare The Market
You can also use TopCashBack to save even more money from your selected provider.
Even if you don’t want to switch companies when your policy comes up for renewal you can call them to haggle and it can often result in some massive savings.
It also helps to have a quote from a price comparison site to hand so you can use that in your negotiation. So just sign up for the comparison site, find the company you want to use and highlight the amount and the quote reference when on the phone.
Tip – Increase your income – more to spend
Whilst cutting unnecessary costs is an excellent way to increase how much money you have left at the end of each month, for a large proportion of people increasing their income will make the most difference.
The common question revolves around what to focus on, cutting costs or increasing income, which I’ll go through in detail in the next section.
Negotiating your salary is one of the fastest ways to increase your income, especially if you’re valuable to your company.
If you can’t increase your income staying at your current employer, then looking for a new job may be the answer. Even a few thousand extra each year has the potential to drastically improve your quality of life, especially when coupled with reducing your costs at the same time.
Starting a side-hustle or business is also an excellent way to supplement your income you make from your main job. This could be anything from small consulting projects based on your skillset, to buying and selling goods online.
There are thousands of ways to make money outside of the regular 9-5 job and a lot can be done in the evenings and weekends. Even making a few hundred extra a year could considerably enhance your life if you spend it on the things you truly value.
Plus in my opinion, starting a business of your own no matter how small will teach you invaluable skills that will help increase your value either to an employer or to yourself if you want to keep working on your own projects.
FAQs – How to Budget More Effectively
How to Save More Money – Increase Income or Increase Savings?
This question comes up a lot. People want to know whether they should prioritise savings or aim to generate more income.
Well, without wanting to state the obvious by saying you should focus on both, I’ll take you through my saving theory to help you know what to focus on for maximum short term gains.
The logic behind this theory revolves around where are you most likely to be able to achieve the easiest and quickest gains, either from cutting your expenses or increasing your income.
For this you need to understand the average salary for someone in your area. This can be done at a high level by looking at the country, although it does help to be more specific, such as the local area and the industry you are in.
As an example, in the UK, the average salary is about £31,000.
For all those people that have a salary below this level, they should focus on increasing their income. This will most likely come from trying to negotiate your salary or finding a new job.
When your salary is below average, there is a higher likelihood of being able to increase your income, and it’s also harder to find savings as you only have a small pot to work with.
If you’re above the average wage for your location or industry, then at first there may be more opportunity in reviewing your expenses before going ahead with aiming for a salary increase.
How to Budget Money on Low Income
I agree budgeting on a low income is hard. Assuming you’ve read the first FAQ above on how increasing your income may be the most effective way to give you more flexibility in your budget, let’s discuss how to focus on costs.
When on a low income, prioritisation on what you truly value becomes even more important. Living and essential costs will make up a larger portion of your income, so your rent/mortgage, utilities and food.
So when you budget your money, you have to ruthlessly cut or reduce any expenses that aren’t important, leaving room to spend on what really matters to you, making your money go further.
How to Budget for Food
This actually trips a lot of people up in their budget as they often put way too much or completely forget to budget for eating out.
To help, try and split your food expenses into supermarket spending, so what you cook and eat in your home, and then a separate budget for eating out.
To find the numbers you usually spend, look at the previous few month’s expenses and try and work out a run rate. You can then use that as a starting point, although can flex it up or down as you see fit depending on the rest of your budget.
Splitting it in this way it lets you focus on how much money you spend on eating out which for many people can be quite the surprise.
However, knowing this spending habit in advance and planning for it may actually lead you to go out to nicer restaurants and make more of an occasion out of it. This will make your money feel like it’s going further and allow you to enjoy your money more, which is exactly what we’re trying to achieve by budgeting!
It’s also easy to split in the budgeting apps as you will most likely go to one or two main supermarkets which your app should be able to learn is your food and grocery costs.
How to Keep Track of Expenses
This is a common question that people have when they’re looking for how to budget. Keeping track of expenses can be a pain if you don’t adjust your spending habits to make tracking easier.
The first step is to reduce or ideally eliminate your use of cash. Every card transaction is linked to a set of data points, mainly the time of the transaction, the merchant and the value. These are really the only pieces of information you really need for your budget.
With cash, you just have a recorded transaction of a cash withdrawal, then everything is off-grid so to speak. Some people like this, although it does make budgeting and tracking spending harder.
If you’re happy to enter your transactions in manually and reconcile each cash withdrawal, please go ahead, although I’m all for the path of least resistance, I recommend the use of cards every time.
If you then use credit cards you then also have the added bonus of getting benefits and rewards when you spend money. This can be cashback, points, better liquidity and even credit score improvements.
Once you have all of your transactions in digital form, you can then use the latest budgeting apps to sync your transactions together automatically and then you’re good to go.
I hope this post has helped you understand how to budget and reframe how you think about money with an emphasis on value.
Knowing where your money is going is the first step, the next step is to plan ahead, making your budgets and spending habits align with your goals.
If you know the reason why you need to save or make a certain amount of money, it will give you a purpose and a reason to track your finances.
This will help you stick to your plan for the long term and significantly increase your chance of success, whatever success means to you.
Hi, I’m John. I’ve always had a keen interest in Finance, so much so that I’ve made a career out of it! This site is a place where I can share everything I’ve learned as well as give me the excuse to research certain topics.
Check out my about page for more info.