Smart basic tricks to set up a budget

We’ve all experienced it – especially in our 20s or 30s. Pay day finally arrives, and just a few days later, the balance already looks worryingly low. According to a recent article in The Times, “around one in six UK workers (17%) report struggling to pay bills each month, and 40% say they have little left for savings or holidays.”

Aside from the rising living costs and necessary expenses, whether money is automatically drawn to various memberships or impulsively spent towards luxuries, getting through the month with some carry-over can be difficult. And while it’s undeniable that we are going through a major cost-of-living strain, the good news is that there are ways towards improving our wellbeing and reducing this additional stress. 

For lots of us though, the idea of planning or budgeting costs sounds overwhelming and restricting. But here’s the thing: this doesn’t have to be a rigid spreadsheet telling us what we can’t have. 

We might make a parallel with dieting: for a diet to be sustainable and work in the long term, it needs to be sufficiently flexible whilst allowing us the space to enjoy what we eat so that we keep on moving forward with it. Similarly, whilst budgeting would involve some sacrifice or restriction, ultimately it would work towards our financial freedom.

A good budget should be like a map: when setting for a road trip, you need to know beforehand how much fuel you might need, what stops you might make and what route to take. Therefore, let’s view some basic tricks about setting up a budget.

Understand what comes in and what goes out

Before even considering tools to track money, we must understand our income and expenses. Without going into each sub-category, a broad understanding would entail any salary, income from investments and rental income, to name a few.

Spending might include essentials, like groceries and bills, but also more discretionary spending, like dining out, subscriptions, tickets for concerts, flights, and so on. Here we can also consider our contributions to a savings or investment plan.

Nowadays, we live in the era of electronic money, so it is an assumption that our banking service keeps track of most monthly income and spending. So, tip number one is to use tech in our favour: connecting to our bank account and categorising spending and income in real time, we can get a broad sense of how much incomings and outgoings we have. Banks might even categorise spending in categories for us, like bills, groceries, take-away food, flights etc. There may be some variability on the amount month-on-month, but a pattern should be clear.

Choose the right tools for your lifestyle

Once an understanding of our ins and outs is clear, tip number two is to appreciate our desired lifestyle, including the level of guidance we need and effort we are willing to put into a plan. Whether someone prefers the visual aid of an online budgeting tool to managing spending habits, a goal-setting tool to plan future spending or to integrate budgeting with investing and savings goals, there is an option for everyone. 

A quick online search, or a browse through the app store, will provide a lot of options for tools that offer a clear, visual overview of spending habits. Some might prefer a more ‘forward-looking’ tool, where you can create your plan and assign income to different categories (like bills, loan payments, entertainment activities, etc.) This goes a step further in helping us anticipate what our disposable income after expected expenditure might look like, so that we can judge our plan based on our desirable lifestyle.

For those preferring to integrate budgeting with a savings or investments plans with the help of an expert, we offer the option of Guidance+. Although this option can also be used for longer-term goals such as retirement planning, someone in their 20s or 30s might benefit from it by getting some tool-assisted and human-led guidance in aligning current spending habits with long-term wealth creation. Our qualified wealth managers would be happy to discuss your thoughts and help you appreciate how this tool can help your budgeting plans.

Set a budgeting checkpoint to stay on track

The beauty of any plan is that there is no one-size-fits-all. It needs to be personalised to you. That means it will be tailored to your priorities, lifestyle and future goals. Are you a ‘weekend-getaway’ type? Budget it. Saving for a car, paying down a student loan or planning for a big holiday? Prioritise this. Do you need to build a ‘cash stash’ pot for ad-hoc cash emergency spending? Adjust it and re-prioritise.

Sometimes, despite everything said, it is still hard to start from scratch. Here is where some rules of thumb might help, so that it is easier to have a benchmark in your mind and then adjust accordingly. So, tip number three is having a ‘checkpoint’ allocation of money which can help calibrate your brain on how to think about budgeting, before you actually start building your plan more thoroughly. 

A popular one is the so-called 50/30/20 rule: this simply suggests dividing your after-tax income into three categories: 50% for needs, 30% for wants, and 20% for savings and debt repayment.

Therefore, using this simple framework, someone with a £2,000 monthly after-tax income would allocate £1,000 towards necessities, like shelter, bills and basic food; £600 towards discretion, such as entertainment and dining out; and finally saving £400 towards any particular objective. As with everything, its power and effect will come from consistency.

Another useful rule to bear in mind is the emergency fund rule. Especially during 20s or even 30s, when people would typically start budgeting and saving, it is unlikely that one has a lot of cash to spare. Bundled with the fact that one could also be at the start of their career and job security might be an additional worry, this rule serves to provide a financial buffer to cover unexpected costs like job loss, medical emergencies or any emergency without the need to resolve in borrowing or cutting back something else. 

The specific amount is again varying with individual circumstances, but the recommended range is having three-six months’ worth of necessary expenses saved away for any such rainy scenario. The exact amount depends on individual circumstances, with factors being expected rent or mortgage payments, expected utilities, groceries, transportation and so on. Again, our needs should be fairly clear at this stage if we have already understood our income and expenses from the start.

The bigger picture: how budgeting ties into financial wellbeing

At Moneyfarm, we often talk about long-term investing and building wealth over time. But none of that is possible without a strong foundation – and budgeting is that foundation. When you understand your spending, you can save more consistently, invest with confidence, and make decisions based on your goals, not your gut.

Budgeting isn’t about restriction – it’s about intention. And with the right tools and mindset, it becomes less of a chore and more of a catalyst for a financially healthier life.

By making an investment, your capital is at risk. The value of your investment depends on market fluctuations and you may get back less than you invest.