What are your financial goals for 2022? Perhaps saving for a sunny holiday or even a wedding? Or boosting retirement funds?

To achieve your goals and feel more in control of your money, it helps to have a budget. This is a financial plan that includes all your income and outgoings. It maps out how you want to spend and save. It’s also something that Starling app features could help with and so can our Budget Planner tool.

Calculating your income

It’s important to start with an accurate figure for your monthly income, after tax and any essential loan or credit repayments.

Calculate your average monthly income over the past year by dividing your annual income after tax by 12. If you’re not sure what you earn after tax, you can use an online calculator or simply add up all 12 months of previous income into your bank account.

If you’re self-employed, you may want to slightly underestimate your monthly income figure, as your income may not be totally predictable.

Looking at expenditure

Next, calculate your essential outgoings (e.g. rent, bills, groceries). It’s also a good idea to include a small buffer. Everyone’s life situation is different and you may need to add in extra lines for items such as childcare, education costs or care home fees.

Calculate your essential outgoings

Essential expenses Monthly amount
Rent £650
Bills (electricity, water, phone, council tax) £200
Groceries £200
Public transport £50
Pets £50
Essential loan repayments £80
Subscription services £20
Buffer £50
Total £1,300

You can use a spreadsheet or a Budget Planner tool to collect the figures.

If you use Starling to manage your finances, you’ll find lots of this information in the Spending Insights section of the Starling app. The Insights feature analyses and automatically categorise your outgoings. It also adds up your monthly income.

Organising your money

As you calculate expenditure, think about money organisation. Starling’s Saving Spaces feature ring-fences money from your main account. With Spaces, you can create multiple virtual piggy banks. That way, you won’t accidentally spend the funds in your main account.

You can set automatic top-ups to feed into the Spaces and you can also add your own picture to each goal, for motivation: how about an image of your dream holiday destination or chosen wedding venue?

Using the Bills Manager feature you can automate your bill payments, paying directly from the Saving Space. You could set up a direct debit or standing order for things like rent, phone contract or the water bill.

With Bills Manager you can pay your direct debits and standing orders from Spaces

Disposable income

Once you know your average monthly income and essential monthly expenditure, work out the difference between them. This is your disposable income.

Income minus essential outgoings gives disposable income

Average monthly income Essential monthly expenditure Disposable income
£1,800 £1,300 £500

Your disposable income is what you could spend on clothing and footwear, eating out or that dream holiday, or paying off extra on a credit card that may have built up (though it’s good practice and cheaper to pay it all off each month). The table below shows a few items, but you’ll probably want to add in others too, for example house repairs or a haircut.

Think about your spending and saving goals

Spending choices, monthly Amount
Going out £150
Clothes shopping £75
Wedding in June £75
Holiday to Caribbean £100
Paying off existing credit card debt £50
Emergency fund £50
Total £500

How can I stick to my budget?

Check in on how you’re doing every month, better still, once a week. You can track your day-to-day spending with Starling’s real-time notifications - every time you receive or spend money, we send you the details. The Spending Insights feature will show where and when you’ve been spending.

You can also switch on the Round Ups feature. This will mean that every purchase will be rounded up to the nearest pound and that ‘spare change’ will be set aside as savings in the Space of your choice. So buying that coffee can also help you top up that Caribbean holiday fund.

The above article is intended as general information and doesn’t constitute financial advice. You should take independent financial advice if you have any questions about your specific circumstances.

Article updated: 21 September 2022.

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