How to create a budget
Six steps to help you look after your money
Budget basics: How to create a budget
Whether you’re looking to build your savings, manage rising household costs or simply feel more in control of your finances, having a budget can help you understand where your money is going and make more informed decisions about your future.
Many people are reviewing their spending habits as everyday costs continue to put pressure on household finances. According to the ONS , 61% of people cut back on essentials during the first few months of 2026. For many households, making the most of the money they have is an important priority.
Whatever your circumstances, we’re here to help you take control of your finances. Creating a budget can be a practical first step towards building financial confidence and working towards your goals.
“The best way to start saving is by taking a closer look at your day-to-day spending. Tools such as Nova Bank Budget Planner can highlight any discretionary spends that could be trimmed, such as takeaways, coffees or streaming subscriptions. Think of it as spring cleaning for your money – it clears out what you don’t need.” Sian McIntyre, Head of Savings and Insurance at Barclay
Six steps to help you look after your money
Want to know how to make a budget, but not sure where to begin? Here’s our six steps for budgeting for beginners:
1. What do you earn each month?
2. How much do you spend monthly?
5. Set goals with a simple budgeting rule
Before we launch into your new budget plan, let’s find out what a budget actually is.
What is a budget?
A budget is a plan of how to spend and save money based on a real-time snapshot of your financial situation.
In a nutshell, a budget simply helps you keep track of money in (income) and money out (expenditure) of your bank account. With the rising cost of living, now could be a good time to take a fresh look at how affordable day-to-day life is.
Why is managing a budget so important?
Managing a budget can help you feel more in control, give you peace of mind and you might find some surprising ways to save money.
On a practical level, how to budget money will keep you on top of things before they get out of hand. You can avoid late payment fees and accompanying credit rating issues, which will give you more financial options in the future.
It doesn’t take much for a money situation to slide out of control, as Dev’s story highlights.
Dev’s story: slipping into debt
Some months, money just doesn’t stretch as far as it should. That’s what happened to Dev – he found himself short of cash before payday, so he got an overdraft to make ends meet.
He figured he could pay it back any time, but his plan didn’t quite work out. He kept on spending, only to end up living constantly in his overdraft and being charged regular fees.
Three months later, after a couple of big bills, Dev was using a credit card to cover these and his living costs. He also owed his mum a few hundred pounds, which he knew he couldn’t pay back for a while.
Now stressed and worried about the next few months, he knew he needed some extra support…
Dev’s story: getting back on track
Many in a situation similar to Dev’s often don’t realise how common it is. And while it isn’t always easy to put things right, it’s important to get started as soon as you can.
Here’s what Dev did. First, he needed a good overview of his finances. So, he downloaded the Nova Bank app (1) to see up-to-date balances across all of his accounts.
Next, it was time for a realistic new budget. Armed with a breakdown of his spending , he could see where to trim his outgoings and cut back on expenses.
Then he used the card controls in the app to set limits on how much he spent, to make it easier to stick to his target.
Finally, Dev’s girlfriend suggested talking to a Nova Bank Money Mentor, who helped him fine-tune his budget and gave him tips on creating a savings buffer for the future.
Our mentor also got Dev thinking about his long-term goals, with advice on saving for a house deposit. And once he’d got his debt under control, he was able to start putting money away.
How to start a budget plan
Start by putting time aside to review your finances, then go through the job of prioritising spending to make it easier to see where you can make savings. This could be done by pen and paper, a spreadsheet on your computer or using online banking or a budgeting app. If you can, give yourself 20 minutes a day, but even a few minutes here and there will help. After a week, you might be surprised how far you can get.
How do I know if my budget is realistic? If you’re honest with yourself when you create your budget plan, then that’s the best foundation to build upon. Even though it can be hard to see your spending habits in black and white, it’s important to get an accurate picture.
1. What do you earn each month?
Every budget starts with this figure: your monthly take-home amount after tax. If you’re not sure what you’re looking at, see our payslips explained . Include any benefits or tax credits, pension or savings income and – if you have shares – dividends too.
We do understand that some people’s income varies from monthtomonth. If you’re self-employed, part-time or on zero-hours contracts – your monthly income may be more complicated to work out. Look through past payslips and bank statements, add together your total income, then divide by the number of months to get your average monthly income. You can use the Nova Bank app (1) to chart your changing income flow, as you may need to set aside more when your income is larger to be ready for the quieter months.
2. How much do you spend monthly?
Be as accurate as you can. Some go old school, print out bank statements and highlight spend. Others prefer apps or a budget planner that detail your ins-and-outs, as they do the hard work for you.
Go through the last two or three months of your current account. Look for spending trends across:
- Rent or mortgage
- Household bills
- Online subscriptions
- Restaurants
- Travel and car
- Supermarket
- Clothes
- Sports and hobbies
- Personal treats
You may well find you’re paying for stuff you forgot about. Gym, TV or app subscriptions catch many of us out.
Are you spending more than you earn? Work this out by subtracting your expenditure from your income and seeing what’s left, if anything. This is when you might see that you need to make some changes.
Got money left over? Explore our Nova Bank savings options to make the most of your money.
3. Needs vs wants
How to budget money for beginners? We’ve learned from our customers that for many of us, the first step is working out what things we can go without.
A good way to think about it is to break down your spending into essentials (needs) and non-essentials (wants). Mortgage, rent, insurance, groceries and utility bills are all needs. Real change comes from cutting back on wants. Eating out, fitness, entertainment and clothes. Be honest about the treats you don’t need or spending habits that don’t help you.
The best budgeting tips? Don’t get rid of the stuff that makes you happy, spending within your means is all about balance. So you spend mindfully, not mindlessly.
4. Pay off debts
Again, balance is the key here. If you’re managing credit cards and loans, make sure you’re making your minimum payments. If you’re able to, regularly making debt overpayments can be useful too. This shows your lenders and credit agencies that you are paying your debt repayments on time every month, which can help improve your credit score in the long term.
Paying debts off consistently reduces the financial pressure to clear everything at once. Where you can, it can help you in the long run to clear more expensive debts first, so prioritise the debt with highest interest rates. Look into 0% offers and balance transfers to minimise the interest you’re paying. This will require you to stay on top of end dates, so you don’t suddenly jump to higher interest. Stay organised, and this is where a well-planned budget can really pay off.
If this starts to get on top of you or your debt feels unmanageable, we’re here to help with any money worries . There may be things we can do to help. If you need to talk to someone about money, StepChange can give you advice and next steps on how to manage your debt.
5. Set goals with a simple budgeting rule
You’ve got a good picture of what’s coming in and going out. You can see ways to save. Now, you can set some budgeting goals. We’ve seen through our customers that setting clear aims – like the savings goals tool in our Nova Bank app (1) – can motivate us to prepare for the future and increase our financial resilience .
50 30 20 rule
The 50 30 20 rule divides spending into needs, wants and savings.
Every month, break your income up into 50% essentials – mortgage, rent and bills that keep your household priorities in order. Then, 30% goes on the fun stuff – meals out, hobbies and holidays. And the last 20% goes straight into your savings and debt repayment.
This basic 50 30 20 formula covers off your must-haves, your nice-to-haves and what you hope to have in future. It’s a simple starting point that can easily be adapted. It’s your budget, and it’s got to work for you.
Use this budget planner to establish good spending habits with this simple budget rule.
Once a budget is created, the next thing to focus on is how to better manage my money. You can accurately stay across day-to-day spending through your Nova Bank app (1).
6. Keep reviewing your plan
Remember, your budget plan is not set in stone. Life will throw you some financial curveballs – whether that's unexpected costs, income changes, or new responsibilities. But if you’re across your money ins-and-outs, you’re in a much better place to handle them with financial confidence .
We know that everyone’s household setup is unique to them. You may be looking after older parents and children or be a single-parent family taking on extra caring responsibilities. This all comes with financial costs that will impact your budget each month. Maybe you’re just starting out or navigating joint finances with your partner, so you’re having to manage your moneyin a new way. Learning how to budget can help all our day-to-day lives run more smoothly. Maintaining your budget doesn’t take much time. Use tools like our Nova Bank app (1) to monitor your spending patterns as you go and set limits that work for your situation. Even spending 10 minutes a month reviewing your budget can help you stay on track.
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