How To Manage Your Money By Budgeting

Not all budgets work according to plan. If you’re looking at your monthly spending figures, you may have forgot to account for extras such as daily snacks, additions to your weekly shop, or money spent on an annual holiday. To budget means to create a plan on how your income will be used for your expenditure.

Our guide to budgeting helps you gain further control over your finances.


Why budgeting is essential

By budgeting correctly, you can easily analyse and make the right decisions on your finances. It helps you answer two important questions:

1. Are you spending more than you’re earning?

2. Can I afford to spend ‘x’ amount each month?

Simply put, if you’re going into your savings or adding additional debt each month, it’s likely that you’re currently overspending. Before you can find a solution, it’s a good idea to understand the level and size of the situation.

If your household income is £2,000 per month and you’re spending £2,400, this is overspending. If your household income is £2,000 per month and you’re spending £1,700, this is totally fine. Excessive overspending will create difficult problems that you will have to deal with later on.

By understanding where you are spending money, you’re able to make changes and prioritise where your income should be going, helping you live within your budget. A budget is a great tool to help you find areas on where you can make quick savings.

Most typical budgets sometimes get it wrong, they generally underestimate how much you’re actually spending, as they fail to include large costs such as birthdays, Christmas, new furniture, or a holiday.

Most household expenditure and debt repayments are made monthly, this is why we suggest you calculate your income/expenditure figures on a monthly basis.

Calculate your total income

Add up your income you receive each month. Include everything such as wages/salary, benefits, pensions etc. Some of your income may be calculated on a weekly or 4-weekly basis. This can easily be adjusted to a monthly figure.

For a weekly income, multiple it by 52, and then divide by 12
For a fortnightly income, multiply it by 26, and then divide by 12
For a 4-weekly income, multiply it by 13, and then divide by 12

The above calculations will give you a monthly figure to use within your budget. We recommend recording this information within a spreadsheet, but pen and paper will do just fine with the help of a calculator.

Calculate your total expenditure

Add up your total household expenditure for each month. This will include the following:

• Mortgage / rent
• Buildings / contents Insurance
• Life insurance
• Council tax
• Service charges
• Gas and electricity (oil)
• TV license
• Water
• Child maintenance / child care
• Car hire purchase
• Car insurance, road tax, MOT, maintenance, fuel, emergency repairs
• Transport (buses, taxis, trains)
• Food and housekeeping (include toiletries and washing up items)
• Clothing and footwear
• Pets (food, insurance, vet bills)
• Baby items (milk, food, clothing, nappies)
• Mobile phone
• Landline, internet, TV packages
• Haircuts
• School (meals, trips, activities, uniform)
• Work meals
• Social
• Emergency

To calculate costs for things like birthdays, Christmas, or holidays, simply divide the total expense by 12 and include as a separate category within the budget sheet.

If you have any debts, think about payments to the following:

• Current debt management plan
• Repossessed items such as cars or properties
• Rent arrears
• Personal loans / pay day loans / doorstep loans
• Credit cards / store cards / Catalogues
• Overdrafts and bank charges
• Parking tickets
• CCJs
• Gas, electric, water arrears
• Internet, TV, mobile phone packages
• Debt collection agencies
• Council tax arrears
• Benefit overpayments

To get a clearer idea of how much you’re spending each month, write down what you spend money on and check previous bank statements. Some banks even provide tools that show where your money is going.

Calculate your disposable income

Once you know your household income, take away your expenditure from this figure, this will now give you your disposable income. This is the money you have left over each month after you have paid for your priority expenses. This surplus should ideally be saved or go towards repaying any outstanding debt.

If you find out that you are spending more than you earn, this will leave you in a deficit. Think about which areas you can cut back on or remove altogether.

Simple ways to increase your disposable income

Here are some quick and easy ways you can increase your monthly disposable income:

• Compare home insurance, car insurance and energy to find the best deal
• Purchase weekly, monthly or annual bus / train tickets
• Prepare food at home rather than buying at school or work
• Reduce mobile phone and internet / TV packages by finding a better deal
• Focus on paying priority debts with higher interest first


If you’re struggling with debt repayments, our friendly specialist advisors are more than happy to help. Contact us on 0800 121 48 63 and we’ll help you find the right solution that suits your needs.