Budgeting

Budgeting is an important part of managing money. When we budget, what we are doing is making sure we do not spend more money than we have. This helps us stay in control of both our money and our lives.

This section explains more about setting up a budget and provides money saving tips.

You can read through this information sheet, or go directly to the sections you want to read by clicking on these links:

• Setting up a budget
• Money saving tips

Setting up a budget

Money coming in

The first thing you need to do to set up a budget is work out how much money you have coming in – your income.

Income can come from a number of different places such as wages, benefits, pensions, rent from a lodger and maintenance payments, so spend some time working out where all your money comes from and how much you are getting.

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Money going out

The next step is to work out how much you are spending. You often hear this talked about as your outgoings or expenditure. Examples can include:

• Rent or mortgage
• Council Tax
• Utilities bills (gas, electricity, water)
• Telephones
• Television
• Insurance
• Food
• Transport
• Clothes
• Going out
• Childcare
• Maintenance payments
• Paying back any money you owe.

Most people tend to look at spending on a monthly basis, probably because wages tend to get paid monthly and we usually pay for big things like rent or our mortgage once a month. Because of this, when you are making a note of your spending, it is important to remember things that you do not spend money on every month. Examples include gas and electricity bills, water rates and car tax.

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Keeping a spending diary

If you do not have a realistic idea of how much you are spending, your budget will not work. The problem is that money gets spent all over the place, so it is very difficult to keep track of. While most of us know how much we spend on things like rent or child care, it is much harder to stay on top of the little things like, snacks, newspapers and gifts.

A lot of people find that the best way to work out exactly how much they are spending is to keep a spending diary. To do this, every time you spend some money you just need to write down how much you spent, what you spent it on and when you spent it. You do not need to do this forever, just until you have built up a good picture of your spending.

To have a go at working out your spending, visit What am I spending my money on? (link opens in a new window) on the Money Matters to Me website.

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Making your budget

Once you know how much money you have coming in and going out, you can make your budget. You can easily do this on a piece of paper:

In one column write down how much you have coming in

In another column write down everything you have going out

By taking away what you have going out from your income, you can see what’s left.

Money Advice Service have a Budget Planner (link opens in a new window) that can help you set up a budget.

If you are spending more money than you have, or you would like to have more left over, you need to go back over everything that you spend money on and work out where you can make savings. Money Advice Service have a cut-back calculator (link opens in a new window) which you can use to help you with this.

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Money saving tips

Trying to make sure we have enough money to pay for all the things we need to in life is one of the biggest challenges that most of us face. But, by looking closely at where our money goes and learning to become thrifty, it is possible to stretch money further.

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Keeping household bills under control

• If you have a bank account, paying your utilities bills by direct debit could save you money, as you generally will be given a discount for paying this way.
• You do not have to stay with the same gas, electricity or telephone suppliers and as long as you have not signed up to a contract over a certain period of time, you do not have to pay to switch. Shopping around could help cut your bills. There are quite a few price comparison websites on the internet that can help you work out the best deals. For instance, Consumer Focus (link opens in a new window), the statutory organisation campaigning for a fair deal for consumers in England, Wales and Scotland and, for postal services, Northern Ireland, has a comprehensive website with information to help you get the best energy deals, apply for energy-related grants and discounts, make energy efficient improvements and much more. 
• Prepayment meters are usually more expensive than paying for utilities by bill, so if you have one and can switch, you should save yourself some money.
• Cut electricity bills by remembering to switch off appliances rather than leaving them on standby, switch off lights when you’re not using them and only boil as much water as you need. Using a washing line instead of a dryer will also help keep cut your electricity bill.
• Turning down your thermostat by one degree may help you to reduce your heating bills.
• Grants are sometimes available to help you carry out energy saving improvements to your home. The Energy Saving Trust (link opens in a new window) has more information. See also the Turn2us information sheet on grants for energy efficiency.

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Eat wisely

• Take advantage of money saving offers on food but only buy what you need. Most of us end up throwing food away, which is a waste of money. Also see if you can switch to less expensive brands.
• Making a shopping list and sticking to it can help keep down food bills. Many people recommend planning meals ahead so you buy exactly what you need.
• Taking sandwiches to work or on days out, instead of buying from cafes, will save you plenty of money, as will cutting out takeaway coffees and bottles of water.
• Takeaways and ready made meals are convenient, but they cost more than cooking from scratch.

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Cutting travel costs

• Do you have to take the car? Sharing journeys, switching to public transport or walking will help save you money.
• If you are travelling by train, booking in advance is usually cheaper and you may find there are rail passes that help cut costs further.
• Coaches are usually cheaper than trains.
• Travelling on public transport outside peak hours usually helps keep costs down.

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Insurance

• Are you paying more than you need to for your house and car insurance? There can be a wide variation in the cost of policies that offer similar cover so it’s well worth shopping around to save yourself money. You can do this by asking different insurance companies to give you quotes or by using one of the comparison websites on the internet.
• Do you need all the insurance you have? Some insurance, such as car insurance, is compulsory and others like travel insurance is extremely wise but there are many optional insurance policies that may not be right for you.

  See Insurance.

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Handling money

• Are you claiming all the benefits you’re entitled to? You can use the Turn2us Benefits Calculator to find out.
• Can you get a better deal on any money you have borrowed, for example by remortgaging your home or switching credit cards? If you are paying less interest, you will see your money go further.
• If you have debts on credit or store cards, try to pay off those with the highest interest rates first.
• If you have enough money to save, are you using your Instant Savings Accounts (ISAs) allowances? Having an ISA allows us to save a certain amount of money every year without paying tax on the interest, which helps our savings grow faster. If you’ve used up your ISA allowances, are your savings in an account with the best interest rate? See Saving and investing

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Free time

• Are you one of the many who pays a regular subscription to a gym that you do not go to very often, for television channels that go unwatched or buys clothes you do not wear? Think carefully before spending your money and it will go further.
• Cinemas, galleries and theatres often have cheaper days so check before buying tickets.
• Use the internet to find out about free events in your local area.
• Make the most of your local library. As well books that you can borrow, libraries have free internet access and there are often activities for children.

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Last updated: 6 July 2012