Find out how a personal budget will help you make the most of your money and avoid over-commitment. It will also help you plan for the future and negotiate with any people you owe money to.

Advantages of a budget

With an accurate budget, you'll be able to cut out unnecessary expenses and save money, or stop running up big debts. If you already have debt problems, a budget will show you how much spare cash you have.

This will help when you talk to your creditors (those you owe money to), because you'll be able to make realistic offers to pay them back over a period of time.

Working out your personal budget

A budget planner has headings for different kinds of income and spending, under which you can enter your own figures.

You'll find several budget calculators on the internet; choose the one that suits you best.


Start by working out what you spend: check recent bank statements, and bills for gas, electricity, telephone, rates, insurance and similar expenses. Don't forget to include anything you pay by standing order or Direct Debit (such as mortgage or rent payments, loan/hire purchase repayments, or child maintenance).

The next step is to estimate what you spend on everyday items (for example, food, clothes, petrol, pet food and newspapers).

Finally, include estimated amounts for unexpected and occasional costs (such as Christmas and birthday presents, car and household repairs, dentist and optician bills or holidays and outings).

Work out the total outgoings for a full year and divide by 52 or 12 to get a figure for each week or month.


Next list all of your income:

  • check your payslips to get an accurate figure for wages
  • look at statements for benefits, Child Tax Credit and similar income
  • include rent from lodgers or contributions from other people

You should average out any irregular income and ignore one-off or uncertain amounts.

Work out your total income for a week or a month, then take away what you have spent to work out whether you have any spare money, or whether you're over-committed.

If you have a shortfall

If your spending is higher than your income, you will have to prioritise your spending and cut back on commitments you can't afford. Make sure you can cover your essential household bills and housekeeping first.

If you complete your budget and find that you have no money left, you may need to remove the payments for unsecured credit or ‘non-priority’ debts.

These include credit cards, bank loans and overdrafts, catalogues, and finance company loans. You need to think about reducing these payments.

Think about:

  • shopping around (especially for ongoing commitments such as gas, electric and telephone costs)
  • cutting everything down to the bare essentials in the short term
  • dealing with debts immediately - it is very important to pay your priority debts first and then deal with unsecured credit debts

At the same time, it's important to make sure you're getting as much income as possible:

  • find out if you can get additional benefits or tax credits
  • make sure that everyone who lives with you and earns money is paying their share

When you start to have money to spare

Budgeting is all about making sure that you have money left over after paying all your bills. You may want to think about putting spare money into a savings account to pay for unexpected expenses, or towards a major expense (such as a holiday or a new car).

If it's a reasonably large amount, it's a good idea to invest it so the money grows.

Shop around before choosing a savings or investment product to make sure you're getting the best deal. You may also want to take professional advice before you make a decision.

Keeping track of your budget

A budget is only an estimate of what your income might be, and what you're likely to spend. It's important to keep track of your actual income and expenses to make sure your budget is accurate.

It's a good idea to keep a notebook with you and, for the first couple of months, note everything you spend. You'll be able to change your budget to make it more accurate, and you may get some ideas of where to save money.

It's also a good idea to review your budget on a regular basis, to take into account big changes in your circumstances (for example, a new job).

Where to get help and advice

Several agencies offer free help and advice including:

More useful links

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