Step two: Start a spending diary
You'll need to get a good grip on how much you're spending in order to set up a budget, and the most effective way to do this is to start a spending diary.
Just grab a small notebook and keep it in your bag/pocket for a week (a month would be even better) noting into it every time you spend money. And that's anything - from a latte and sandwich for lunch to a 30p packet of crisps on your way home.
This will give you a true picture of how much you spend - and once you see it in black and white it should help you decide what a worthwhile purchase is and where you could be saving money.
If you own an iPhone or iPod Touch, there are lots of free applications you could use to keep track of your spending as well. Read Five free ways to spruce up your finances for an in-depth review of the top five.