How to Build a Budget that Works

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Most people view their budget as merely an exercise to try and cut costs. Whilst cost cutting may be a focus for some, your budget is much more than that. It’s a tool to help you achieve your goals and not just your financial ones.

Want to start a family? Odds are the household income will be hit due to maternity leave, childcare costs or becoming a one income household. Want to travel more? You will need funds to get to your destination and also live. Want to leave that job you hate? What’s stopping you? Oh, money!

The point is that money impacts most areas of our life. You could do all of the above without considering the financial implications, of course, but it’s likely to lead to a lot of stress. With so many other things to worry about think of your budget as the tool that puts you in control of your finances.

  1. Determine how much you have

First things first, we can’t make plans on moving forward without understanding where we are currently. That means understanding what we currently have. List your cash savings, investments, the market value of your home, investment properties, car, business, pension etc. This will show you what you have in assets.

  1. Know what you owe

Be honest here. If you are to move forward it will mean dealing with debt head on. Head in the sand is NOT an option! List all outstanding debts so you can be clear how much you owe overall. Common debts include Mortgage, Car finance, Credit card balances, Student Loans, bank loans.

  1. Work out your Net Worth – VERY IMPORTANT

This is your financial position. Deduct what you owe from what you have and you have your net worth.  If it’s positive, great, if not don’t panic! This is likely to be the case if you are just starting out or early in your career. The key thing is that you know what you’re situation is, so are able to do something about it. That is one step ahead of most people.

  1. Determine your income

For most this will be solely your salary. Some will have multiple streams of income including your job and maybe a side hustle or two. If you don’t have more than one stream of income start thinking about how you can make money on the side, as everyone knows a job can be here today and gone tomorrow.

  1. Monitor your spend

For a budget to work we need to understand what we are actually spending. There are a number of ways to do this:

  • Manually using excel (or pen and paper if you want to be really old school)
  • Financial Management app (such as OnTrees in the UK or Mint in the US)

To do this effectively, consistency is essential. Set aside time to review at a frequency that works for you (e.g. weekly, monthly). If you’re planning to do this using pen and paper, weekly would probably be best as your transactions will build up.

  1. Work out monthly bottom line

Are you overspending underspending? If you’re overspending you are either putting yourself in debt or dipping into savings each month. Underspending means you’re not making the most of your money. If you’ve got some left allocate it to your financial plan. There should be nothing left unallocated. This is what is known as the zero-sum budget.

  1. Set goals/Determine what’s important to you

What is it that you want in life? To retire early, a move to a tropical location, four vacays a year, financial freedom, the list could go on. This will help you to prioritise where you allocate your money. Your goal will also be your motivation especially when things get tough. Make sure that it is clear and if it helps, get that vision board out!

  1. Automate where possible

Following your budget involves commitment. However, that commitment doesn’t make you immune to things trying to take you off course. To avoid constant tests of willpower automate your transactions where possible. For example direct debits for bills and automated transfers to savings. Taking the decision-making out of it makes it less likely you’ll go astray.

  1. Monitor spend against your budget & adjust where necessary!

I like to do this on a monthly basis. If you aren’t making progress as anticipated or are struggling to stick with your budget (not due to a lack of commitment), your budget may not be right for your circumstances. In this case– tweak and carry on!

  1. Stick with it

The results will come, just give it time.


If you don’t have a budget NOW is the best time to create one. Although this may be daunting, following the 10 steps above will help you on your way.

Do you have a budget? What worked and what didn’t? Please share your budgeting tips in the comments below.

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2 Comments

    • msmoneymaximiser
      April 26, 2017 / 10:33 pm

      Thanks Francesca. Looks like there are a lot of us budget nerds out there, so you’re in good company. 🙂

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