A guide to making the most of your money
Having a budget makes it easier for you to keep track of your spending, which can help you save money. By writing down what 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 charge of your money.
Use the table of contents below to easily find the information you need:
- What is budgeting?
- How to make a budget
- How to use your budget to help you save money
- If your circumstances change
- Tips for budgeting money
- Ways to increase your income
- Useful websites
What is budgeting?
A budget is simply a list of money you have coming in and money you spend. Money you have coming in could include:
- Income from your job or self-employment
- Any benefits you receive
- Pension payments (including the State Pension and workplace pensions)
- Child maintenance or support payments
- Interest from savings
- Income from investments
Money you spend includes your spending on household bills, food, transport, and spending on ‘nice to haves’. It’s also important to include irregular spending, such as Christmas and birthday presents or boiler service, car MOT etc.
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
Creating a budget is simple, and you can use a spreadsheet, an app or online service, or just a pen and paper. 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. See the government-backed MoneyHelper website to get tips on how to budget if your income goes up and down.
How to make a budget
Setting up a budget is easy. Just follow these four steps:
- Gather useful information: List all the income you get (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.
- Work out all your income: This is money you regularly receive. Calculate your total income after tax to see how much you actually have to spend. If you receive irregular or unpredictable income, such as over-time or gifts from family, think carefully before including it in your budget. You cannot rely on this income, so it may be better to set it aside for other uses.
- 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 this continues, you’ll find yourself eating into any savings you have and even borrowing just to make ends meet.
Start creating your budget today using one of the tools we've recommended.
How to use your budget to help save you money
If you’re spending more money than you have coming in, or you only have a little money left over, there may be ways you can use your budget to help save you money.
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).
What to do if your circumstances change
Reviewing your budget regularly is a good idea, 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 changes, or 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 comparing prices online. For guidance on using price comparison websites, see the MoneyHelper guide.
- Make sure your savings are earning the best interest rates by comparing rates online. For guidance on using price comparison websites, see the MoneyHelper guide.
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.
Useful websites
- Energy Saving Trust - Tips to save energy
- MoneyHelper - Advice on budgeting
You can find budget planners at:
- MoneyHelper
- The debt advice charity StepChange
- MoneySavingExpert
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.
