A personal – or household – budget is a tool used to monitor and manage your spending. It helps you to balance income against expected spending, including things like paying fixed costs such as rent, discretionary spending on things like entertainment – and saving.

This guide walks through what a budget is, what it does – and how to build your own personal budget and take control of your money.

What is a budget?

Individuals, households, companies and countries can all have budgets. A budget is a planned forecast of income and expenditure, based on past spending and upcoming needs. 

When it comes to a personal budget – or a household budget if you’re creating one for your whole family – we’re usually talking about a financial plan which looks at how much money is coming in, against your spending requirements and saving goals. You might have a budget for a specific reason – to pay down debts or save for a big purchase for example – which is aimed at cutting outgoings and maximizing savings. However, a budget doesn’t have to be at all restrictive – it can just be a tool to make sure you’re understanding and tracking your spending effectively.

How to build a budget?

In broad terms, building a budget requires you to analyze the total amount of income you have, and set that off against your outgoings. Outgoings can fall into different categories – fixed costs which are unavoidable and pre-set, variable costs, and discretionary spending. Discretionary spending covers things like entertainment and even savings – these are your wants, rather than your needs.

We’ll walk through the steps you need to build a budget for yourself in just a moment. It’s important to note that a personal budget is only useful if it’s based on accurate information, and maintained regularly. You may find you need to adjust your budget over time to stay on top of changes to your spending and income levels – which you can only do if you’re tracking your finances consistently.

How to calculate a budget?

Here are some broad steps you’ll need to take to come up with your own personal budget:

1. Gather as much of your own financial information as you can

Your household budget will only be meaningful if it is calculated using accurate information. To make sure you have everything you need, it may help to track your spending for a period of time – a month or two should be enough – and gather any financial statements you can. Financial statements can include bank statements, spending receipts, utility bills and pay-checks for example. Use actual numbers – rather than estimates – wherever possible in your final budget.

2. Calculate your total income

Your first step is to work out what money is coming in. Add together any sources of income you have, such as your salary, any benefits or regular payments from elsewhere, income from your side hustle, rental properties and so on. Many people choose to create a monthly budget, to fall in line with rental and salary cycles – that means that coming up with a monthly income figure is the best idea.

3. Find and list out unavoidable outgoings – noting if they’re variable or fixed

Next you need to know what money you’ll need to spend each month. You may do this by looking at your bank statement and noting the payments you’ve needed to make over the last month or two. Some spending, however, may happen less frequently – buying gifts for Christmas or birthdays, or replacing items of furniture or household appliances for example. Don’t forget to include these costs when creating your master list of outgoings.

When you’re working through this stage you’ll find it helpful to note which of your list of outgoings are fixed, which are variable, and whether or not something is discretionary. 

Discretionary spending is something you could cut if you need to – which is useful to know when you come to adjusting your final budget. 

Variable expenses on the other hand, may require you to come up with some average amounts, and make tweaks to other aspects of your spending as you work through your budget later.

5. Compare your income against your outgoings

Now you know how much money is coming in, and how much you need – or want – to spend and save. Compare the two final figures.

Adjust your budget to suit your needs and your goals

This is the final – but arguably most important – stage. If you discover your incomings more than cover your projected spending you may choose to adjust your budget to include more savings. If you find there’s a shortfall, you might want to cut down some aspects of discretionary spend, or look for ways to increase income. And if you’re working on a budget for a particular goal, like saving for a new car, you can now start to look at ways to cut outgoings and therefore give your savings a boost.

Personal budget calculator


You can work through the steps above alone – or try out one of the helpful online tools to walk you through the process of creating your own household budget.

Try this free budget calculator as an example. Other available tools use a specific methodology to split out your spending and saving. Check out this personal budget calculator based on the 50/30/20 method of increasing savings, paying down debt and managing your money within distinct categories of wants and needs.

Are there any personal budget apps?

Another smart way to build and manage your personal budget is to use a budgeting app. There are a broad range of apps out there which can help you track and categorize your spending, to meet your personal goals. Here are a few popular ones to consider:

Mint – get the Mint app to plan your budget, track your spending and even monitor your credit score. You can consolidate your different personal accounts to view and manage all your income and spending.

PlumPlum is a budgeting app which has a focus on using AI tools to increase your saving and allow you to invest. You can link multiple bank accounts and have the AI technology help you meet your personal saving and investment goals. Plum is a UK based company and not all services are globally available – check if you’re eligible before you download.

PocketGuard – use PocketGuard to calculate how much spendable money you have once all your fixed costs and saving goals are accounted for. You get a helpful visual representation of where your money is going, and can use the app to save and negotiate lower bills for your cellphone and more.

Budgeting tips

Let’s close with a few more helpful tips to help you build and use a personal budget.

  • Your budget is a live document which will change over time. You can fix an appointment with yourself to review it every month and make adjustments based on your goals and needs.
  • You could have short, medium and long term spending and saving goals to help you plan over time.
  • If you need to reduce your spending, you can look at the broad picture of where your money goes by category. Reducing the costs of ongoing monthly bills like your utilities, cell phone or rent may produce better longer term results than tackling smaller spending categories.
  • Using budgeting apps makes the experience of budgeting much easier, and can be far easier to fit into day to day life than using a paper ledger or spreadsheet.

Creating a personal or household budget does take time. However, it’s an investment in your personal financial health, and will pay dividends in future. Look for budgeting tools and approaches which suit your personal preferences to get started, and remember that being consistent about reviewing and managing your budget will reap the best rewards.


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