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Guide to budgeting

By setting a budget that takes into account both your incomings and outgoings, it could give you peace of mind to ensure that you have adequate funds for your monthly priorities and minimise the possibility of taking on debt.

A well-prepared budget is the key to enjoying life without the stress that debt can create. Debt can be a heavy burden to carry but if you follow our simple guide, you can take control of your finances and lighten the financial load.

Ignoring your financial situation by burying your head can make things worse, so it's worth overcoming this fear and seeking support to guide you through your existing financial problems. Try to remain calm and avoid the temptation to borrow more cash to pay off any existing debts, as there are several ‘cowboy’ firms on the market. These firms may tempt you into a quick fix solution to clear your debt but charge you extortionate interest rates in the process.

Our easy guide is designed to help you prepare a budget to help you regain control of your finances. The first important step is recognition that you may be struggling and seeking help is a positive action to resolve the financial difficulties you may have.

Starting your budget

Firstly, you need to prepare a concise and honest financial statement. The statement should list the date, detail your income, living expenses and priority outgoings. Your priority outgoings are your mortgage or rent, council tax, gas, electricity, water rates, income tax due, court fines and television licence, which are your essential financial outgoings. On your statement it is important to make a list of all your debts and where they are owed, so that you build up a clear, accurate financial picture. You will need to determine your overall income so you can have an idea of how much cash you earn, as this is key to creating a successful personal budget.

Now track your income and expenses

Once you have prepared your financial statement, you could then identify how you’re spending your cash. You could use a salary calculator to work out the pay you take home.

Review the bills that you have to pay monthly. You could look at your outgoings i.e. eating out, the cinema, coffees, takeaways etc. This overview will give you a better look at where your money is going and help you keep control on tracking your expenditure and minimising the outgoings by making sacrifices.

If you add up your regular expenses, then subtract it from your income - you could see if you get a negative sum. If this is the case, then it means you are living beyond your means and you need to cut back.

Spilt your cash into groups

Once you have worked out the total debt owed, use a percentage of your income to repay any outstanding debts, by setting aside a reasonable amount to pay each month to clear them. About 10% to 20% of your salary could be used for unexpected expenses, such as a rise in your utility bills.

For savings, you could use a minimum of 10% of your wages for savings although ideally 30% is better. About three to six months of your wages could be set aside for an emergency fund or for investing.

The remainder of your cash after your debt repayments, unexpected expenses and savings is your spare cash that you could use for eating out, retail shopping or any social activities to go over this would be living beyond your means and incur more debt.

Maintain your budget

You could set budget and financial goals for both short-term and long-term. Short-term goals could include not spending more than a certain amount of money each month or saving a hundred pounds monthly. Long-term goals may include saving for a house deposit or a down payment on a car.

If you make sure you have a financial goal and something to be working towards, it could help you to stay on track with your budget, and maintain it.

Extra steps to stay on budget

Try to be mindful with your spending habits and keep an eye on where your cash is being spent. It may be worth noting down your repeated daily expenses, for example, a coffee at a bar, lunchtime sandwich or a daily newspaper. Use mobile apps to keep constant track of your expenses as they can be accessed instantly.

Leave your debit or credit card at home to avoid temptation when you are out as it could lead to you going off budget. Take a set amount of cash out weekly and try to stick to that budget.

Try to differentiate between luxuries and necessities and determine your needs versus your ‘wants’. It makes sound financial sense that the necessities are your highest priority in your budget.

You could reduce larger expenses, for example, you could swap your summer holiday abroad and stay in the UK. These are often the effective ways you can stay within your budget. If you choose to smoke, then you could look at ways to help you quit.

It pays to staying ahead of inflation as it raises the cost of living. If you have a rise in your income, then try to hold back on spending to stay within your budget and keep ahead of inflation.

Where to go to for further help

If you feel that you need further advice and support then you can contact the Citizen’s Advice Bureau at

For debt advice, you can contact Step Change (previously known as Consumer Credit Counselling Service) at

Once you have set your budget and followed our simple steps, you could find yourself back on track with your expenditure and ease the financial pressure on your bank balance.