Nobody likes the word “budget.” It sounds restrictive, boring, and vaguely parental. But here is what a budget actually is: it is you deciding where your money goes instead of wondering where it went.
Without one, money has a way of vanishing. Not on anything dramatic, just a subscription here, a delivery order there, a round you did not plan on buying. By the 20th of the month, you are checking your balance and doing mental arithmetic about whether you can afford to eat properly until payday. If that sounds familiar, you are not bad with money. You just do not have a system.
This article gives you one.
Why Most Budgeting Advice Falls Short
You have probably seen the 50/30/20 rule: spend 50% of your income on needs, 30% on wants, 20% on savings. It is neat, memorable, and widely recommended. It is also increasingly unrealistic for young people in the UK.
The problem is housing. If you are renting in a city (and most young adults are), rent alone might consume 35 to 45% of your take-home pay. Add council tax, energy, water, phone, food, and transport, and your “needs” can easily hit 65 to 70% of income before you have spent a penny on anything discretionary.
When your essential costs eat up most of your pay, being told to keep them at 50% is not helpful. It just makes you feel like you are failing at something that was never designed for your situation.
A more realistic starting point for many young people today is something closer to 65/20/15: 65% on needs, 20% on wants, 15% on savings. And if 15% savings feels impossible right now, 10% or even 5% is still infinitely better than zero. The proportional model gives you a target. The important thing is to know your actual numbers, not someone else’s idealised ratio.
The Line-Item Budget: Start Here
Proportional models are useful as a sanity check, but the method that actually works is the line-item budget. It means listing every source of income and every regular expense, line by line, and seeing what is left.
It does not need to be complicated. A spreadsheet works perfectly well. So does a piece of paper. Here is the basic structure:
Step 1: Calculate your monthly income. Use your net (take-home) pay, not your gross salary. If your income varies (part-time shifts, freelance work), use an average of the last three months or, if you want to be cautious, use your lowest recent month.
Step 2: List your fixed costs. These are the bills that are the same (or nearly the same) every month:
Rent, council tax (check if you qualify for single person discount or student exemption), energy (gas and electricity), water, broadband, mobile phone, insurance (contents, car, etc.), minimum debt repayments, subscriptions (streaming, gym, apps).
Step 3: List your variable costs. These change month to month but are still necessary:
Food and groceries, transport (fuel, bus/train fares, car maintenance), toiletries and household items, clothing (be realistic about what you actually spend, not what you think you should).
Step 4: List your irregular costs. These are annual or occasional expenses that catch people out if they do not plan for them:
Car MOT and service, road tax, car insurance (if paid annually), Christmas and birthday presents, dentist and optician, holidays.
Divide each annual cost by 12 and include that monthly figure in your budget. If your car MOT and service costs £300 a year, that is £25 a month you should be setting aside. If you do not budget for irregular costs, they will blow a hole in whichever month they fall in.
Step 5: Subtract everything from your income. If the number is positive, that is your surplus, the money available for saving, investing, or discretionary spending. If the number is negative, something needs to change: either income needs to increase or spending needs to decrease. The budget is simply showing you the reality.
A Worked Example
Ewan is 24 and lives in a house share in Bristol. His gross salary is £31,500. After tax, National Insurance, pension contributions, and student loan repayments, his monthly take-home is £2,051.
Ewan’s surplus is £687 per month. That does not mean he has £687 of “free money.” It means he has £687 to allocate consciously. He might put £150 into a stocks and shares ISA, £100 into a rainy-day fund until it reaches three months of expenses, and allow himself £437 for additional discretionary spending, unexpected costs, and the occasional treat.
The point is not to restrict himself to the penny. The point is that he knows the number. He is not guessing. He is not hoping it works out. He has a system.
The Rainy-Day Fund
Before you start investing or paying off anything beyond minimum debt repayments, build a cash buffer. The general advice is three to six months of essential living costs in an easy-access savings account.
If Ewan’s essential costs (rent, council tax, food, transport, phone, minimum debt payments) total roughly £1,100 per month, his target rainy-day fund is £3,300 to £6,600.
That might sound like a lot when you are starting from zero. It is. Build it gradually. Even £50 a month gets you to £600 in a year, which is enough to cover a broken phone, an emergency dentist visit, or a month of expenses if something goes wrong at work.
The rainy-day fund is not for Christmas presents, sales, or holidays. It is for genuine unexpected costs: job loss, essential car repairs, emergency travel. It sits in a separate account, ideally at a different bank from your current account, so you are not tempted to dip into it casually. Look for the best easy-access interest rate you can find and make sure the account is protected by the Financial Services Compensation Scheme (FSCS), which guarantees up to £120,000 per person per banking institution.
Digital Tools
You do not need to pay for an app to budget, but some people find them helpful for tracking spending after the initial plan is set up.
Free options that work well:
Your banking app itself is a good starting point. Monzo and Starling both have built-in spending categories and the ability to create separate “pots” for different goals (rent, bills, savings, socialising). If your bank offers this, use it before paying for a third-party app.
Emma (emma-app.com) connects to your bank account and categorises your spending automatically. The free tier covers the basics. Paid tiers add more features, but the free version is sufficient for most people starting out.
YNAB (You Need a Budget) is a paid app (around £99 per year) that takes the line-item approach further by requiring you to assign every pound to a category until your unallocated balance is zero. It has a devoted following and genuinely does change behaviour for many people, but it is an investment. Try the free trial before committing.
My recommendation? Start with a simple spreadsheet or even pen and paper. Get the basics right first. If you find yourself wanting more automation or category tracking after a month or two, explore the apps. But the app is not the budget. The budget is the plan. The app is just a tool for tracking whether you are sticking to it.
The “Pay Yourself First” Principle
I cover this in detail in the Time — The Money Superpower eBook (free on the Money Sorted website), but the core idea is worth repeating here.
On payday, before you spend anything, move a fixed amount into savings or investments via a standing order. Treat it like a bill. The amount does not matter nearly as much as the habit. £25 a month is fine. £50 is better. Whatever you can manage without creating genuine hardship.
If you wait until the end of the month to save “whatever is left,” there will never be anything left. Human nature ensures it. The only reliable way to save is to remove the money before you have the opportunity to spend it. This is not about willpower. It is about designing a system that works with your behaviour rather than against it.
When the Numbers Do Not Work
Sometimes, even after careful budgeting, the numbers are genuinely negative. Expenses exceed income and there is nothing left to cut without cutting essentials.
If that is your situation, the budget has done its job. It has shown you the reality clearly. The next step is not to pretend the problem away but to address it directly: can you increase your income (overtime, a side job, asking for a raise), reduce your biggest cost (often housing, which might mean a different location or different living arrangement), or access support you are entitled to (Universal Credit, council tax reduction, energy bill support)?
Knowing exactly where you stand is always better than not knowing. A budget that shows a deficit is not a failure. It is information, and information is what you need to make good decisions.
The Money Sorted Budgeting Toolkit eBook includes downloadable budget templates, additional worked examples for different life stages, and a guide to UK benefits and support you might be eligible for.
This article is part of the Money Sorted series on moneysorted.money. For more on managing your money, from payslips and tax to investing and pensions, explore the full range of articles, courses, and eBooks.