Budgeting What is Budgeting?

Budgeting is one of the most powerful tools in personal finance. At it’s core, budgeting is simply the process of balancing your income and outcome and thus creating a plan for how you’ll spend your money. But beyond the basics, budgeting is about taking control of your financial future, hence reducing stress and making intentional decisions about your money.

Starting a budget can help you to determine whether you’ll have enough cash-flow to do what you need/want to and can help you to identify where you might be able to make savings.

There are several different approaches to budgeting and what works for one person, may not work for someone else. You can read about our budgeting story and the approach we decided to adopt.

Why budgeting matters more than ever

In today’s fast-paced world, where subscriptions, impulse purchases, and rising living costs can quietly drain your bank account, budgeting helps you:

  • Track spending habits and identify leaks.
  • Set and achieve financial goals (like saving for a holiday or building an emergency fund).
  • Avoid debt by planning ahead for large expenses.
  • Feel more in control and reduce money-related anxiety.

Popular Budgeting Methods

There are several different approaches to budgeting, we have detailed some of the most popular methods below.

Zero-based budgeting

The aim of this approach is to ensure that every single pound (dollar/euro etc) of your income is accounted for in your expenditure. Your income minus your expenses equals zero every month.

Example: You earn £2500 per month.

  • Rent = £900
  • Groceries = £300
  • Utilities = £150
  • Transport = £200
  • Savings = £400
  • Debt repayment = £300
  • The fun stuff = £250

Total Expenses: £2500

So if you earn £2,500 per month, you will plan where every single £ will go. This approach is best for those who want full control and visibility over every penny.

50/30/20 Budget Plan

This is a common budget approach and allows much more flexibility. The goal is that 50% of your income goes towards the essentials – food, mortgage/rent and bills. 30% goes towards “wants”, or what we call the “fun stuff” – takeouts, days out and holidays.

Yes, you read that correctly – a budget is not about restricting what you spend, more about planning what you spend.

The last 20% of your income goes into savings or investments.

Example: You earn £2000 a month:

  • Needs = £1000
  • Wants = £1000
  • Savings/Investments = £1000

Our Budget App provides an indication of which categories your expenses fall into, in Budget Pro we use the terminology, "Fixed", "Flexible" and "Savings".

The Reverse Budget

Save first, spend later.

This method of budgeting turns the traditional approach on its head by putting saving ahead of any other expenses. Save first and then spend. This prioritises your financial goals such as paying off debt or saving for a mortgage. Once you have put money towards your financial goals, you then pay your essential costs.

Example: You earn £2000 a month:

  • Save £500 a month towards mortgage overpayment or deposit
  • Remaining £1500 covers essential spending and the “fun stuff”

60% Solution Budget

Coined by financial journalist, Richard Jenkins, this approach allocates:

  • 60% of income to committed expenses (housing, food, clothing)
  • 10% to retirement savings
  • 10% to long-term savings (for bigger purchases)
  • 10% to short-term savings (for things like holidays)
  • 10% to the “fun stuff!

Advanced Tips for Budgeting Success

  • Automate Savings – Set up direct debits to your savings account on payday
  • Use sinking funds – Save monthly for irregular expenses like car repairs and Christmas
  • Review Subscriptions – Cancel the ones you’re no longer using to free up cash
  • Track emotional spending – Unplanned, impulse spending can send your budget off-track
  • Set SMART goals: Specific, Measurable, Achievable, Relevant, Time-bound

Whatever your Whatever your reason for starting a budget or whichever method of budgeting you opt for, our Budget App will help you take control of your finances and plan your spending. Let's get started.