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How to make a budget and cut your spending
A guide to making the most of your money
Budgeting is a great way to stay on top of your finances. By keeping track of how much money you have coming in (your income) and how much money you have going out (your spending) you can get a clear picture of your finances and take control of your money.
You can navigate through the guide using the table of contents.
- Why budget?
- Ways to increase your income
- How to make a budget
- How to cut your spending
- If your circumstances change
- Tips for budgeting money
- Useful websites
Why budget?
Budgeting can help you:
- see exactly where your money goes
- spot overspending or when you’re paying for things you no longer need or use
- live within your means: you can adjust your spending to ensure you don’t get into debt
- work out what you can afford
- plan for big expenses such as Christmas, holidays and annual bills
- save for the future
You can create a budget using pen and paper, a spreadsheet or with the help of an online budget planner. Budgeting can be harder if you have an income that varies - for example, if you're on a zero-hours contract, are self-employed or on certain benefits. Get tips on how to budget if your income goes up and down.
Ways to increase your income
There are various ways you may be able to boost your income.
- If you’re working you may be able to increase your hours or pick up some overtime. If you’re not working you may be able to get a part-time job.
- Check you’re claiming any benefits or other financial help you’re entitled to. If you’re on a low income you may be entitled to some form of income support or help with your housing costs. If you care for someone, are in poor health or your household changes (e.g. someone moves out or dies) you may be entitled to other benefits. To find out more about benefits and check your benefit entitlements use one of the government's benefits calculators.
- If you have a spare room in your home you may be able to rent this out. You can earn up to £7,500 in rent before you have to pay tax on this money. Find more about the government’s rent a room scheme.
How to make a budget
Gather together useful information: Include details of any income you receive (salary, pension, benefit payments and income from savings and investments), as well as household bills, food bills, credit card statements, insurance costs and so on.
Identify all your income: This is money you regularly receive. Work out your total income after tax to see how much you actually have to spend. If you receive any irregular or unpredictable income such as over-time or gifts from family, think carefully before including it in your budget as you cannot rely on it. It may be better to earmark it for other purposes.
Work out your spending: Make a list of everything you spend. As well as regular spending, include occasional spending such as for Christmas, holidays and visits to the hairdresser. Work out how much you spend on these each year and then calculate how much you need to set aside for these.
Take your spending away from your income: If you have a surplus each month, that’s good news. But if your spending is higher than your income, you need to take action. If you allow this to continue you’ll find yourself eating into any savings you have and even borrowing just to make ends meet.
How to cut your spending
If you can’t increase your income you may be able to cut your spending.
- Check your budget for any over or unnecessary spending.
- Divide up your spending into needs and wants. Needs are things you have to pay for such as rent and food, wants are things you could do without at a push. Once you’ve worked out your essential spending (your needs) you can then see
how much cash you have left for other things (your wants).
If your circumstances change
It’s a good idea to regularly review your budget as your income and spending patterns can change. You may also find that prices go up which affects how much spare cash you have.
Your circumstances might change if someone moves in or out of your household, you cut your working hours or stop work altogether, your health deteriorates, you start to receive extra income such as the State Pension or a private pension.
Tips for budgeting money
Here are some tips for saving money on household bills.
- Take advantage of supermarket offers, money-saving vouchers and retail discounts. Find out more on MoneySavingExpert.com.
- If you need help with energy bills visit the energy regulator's website at ofgem.gov.uk. To find ways to save energy in your home visit gov.uk for details.
- Make sure you’re not paying over the odds for your insurance by using a price comparison website. For a useful guide on how to buy insurance using price comparison websites, visit the MoneyHelper.
- Ensure your savings are earning the best rates of interest by a using price comparison website. For a useful guide on using price comparison websites, see the MoneyHelper.
Useful websites
- Energy Saving Trust - Tips to save energy
- MoneyHelper - advice on budgeting
- Which? - Best ways to save money
You can find more on budgeting at:
You can find budget planners at:
More money guides
Our handy guides cover a wide range of financial matters including budgeting, debt, how to cut your bills, retirement and making a will.
