How to Create a Personal Budget Plan in 5 Easy Steps

Making a budget might seem overwhelming at first, especially if you’ve never done it before. But By breaking down the process a bit, you can take control of your finances and make your goals more achievable. . Because no one builds a house in a day. (You lay one brick at a time.) And no one leaps into budgeting like a pro. (You take it one step at a time.) By the end of this guide, you’ll know how to plan a personal budget for the month.

Table of Contents

Calculate Your Take-Home Income
List Your Bills and Expenses
Subtract Your Expenses from Your Income
Allocate Your Remaining Funds
Adjust Based on Your Goals

Calculate Your Take Home Income

Your take-home income is the money that reaches your pocket after taxes and other deductions. This is the amount you should use to base your budget. For example, if your monthly salary is £2,500, but after taxes and other deductions you receive £2,000, your take-home income is £2,000. This ensures you only plan with guaranteed funds.

1. List Your Bills and Expenses

Next, jot down all your monthly expenses. These can be divided into fixed expenses (rent, utilities, insurance) and variable expenses (groceries, entertainment). Here’s a practical breakdown:

Fixed Expenses:

Rent: £800
Utilities: £150
Insurance: £50

Variable Expenses:

Groceries: £300
Transportation: £100
Entertainment: £100

Total your fixed and variable expenses to get a clear picture of your monthly outgoings. It’s helpful to use the highest possible value for variable expenses to avoid underestimating your spending.

1. Subtract Your Expenses from Your Income

Subtract your total expenses from your take-home income to see what remains. For instance, if your income is £2,000 and your expenses total £1,500, you have £500 left. If the result is negative, you’ll need to reassess your expenses to avoid a deficit.

1. Allocate Your Remaining Funds

With the remaining funds, prioritize savings and financial goals. This could include building an emergency fund, saving for a holiday, or investing. Let’s say you have £500 left:

Emergency Fund: £200
Holiday Savings: £150
Investments: £150

Having a plan for every pound ensures that your money works towards your goals rather than disappearing on unplanned purchases.

1. Adjust Based on Your Goals

Review your budget periodically to ensure it aligns with your financial goals. If you aim to save more, look for areas to cut back, such as dining out or subscription services. Regularly adjusting your budget helps you stay on track and make informed financial decisions.

Practical Examples

Here are two relatable examples in a table format to illustrate the budgeting process:

Income & Expenses	Example 1	Example 2
Income	£2,000	£3,000
Fixed Expenses	£1,200	£1,500
Variable Expenses	£400	£800
Total Expenses	£1,600	£2,300
Remaining Funds	£400	£700
Savings Allocation	£200 (Emergency Fund), £200 (Holiday)	£300 (Investments), £200 (Emergency Fund), £200 (Holiday)

Creating a personal budget plan is a straightforward yet powerful tool for financial management. It requires a bit of time and effort to track your income and expenses but provides significant rewards in terms of financial clarity and goal achievement. Regularly review and adjust your budget to stay aligned with your financial goals, and you’ll find yourself on a solid path to financial stability.

By following these steps, you’ll gain control over your finances and make informed decisions that support your long-term goals.

To make budgeting even easier, download our Free Effortless Budget Tracker here.