KEY LEARNINGS

  • Understand the benefits of starting a budget.
  • Find out how you might go about starting a budget by using a range of different approaches.

Read time

13 mins

Chapter 1

Chapter 1

HOW TO START A BUDGET

Read time

2 mins

Knowing exactly how much money you've got coming in and going out – and where it’s going – can help you make informed decisions about your spending, give you peace of mind and help you avoid debt.

Creating a budget can help you with this. A budget is a plan that shows your incomings and outgoings which can be used to plan your spending in a way that makes sure you have enough to spend on the essentials.

You don’t have to sit and puzzle your way through a budget alone. Try the Budget Planner from MoneyHelper to get you started. This online tool will ask you to list your income and outgoings, and then it’ll give you a helpful overview of your finances. You can download the report and use it to identify ways you could save – or suggestions for how you reduce your spending.

Using that information, you can use any online budget planning tool (or simply a pen and some paper) to create a basic budget by listing out the amount you need to and want to spend on different things each month. Your categories might include:

  • Household bills (like rent/mortgage, utilities, car costs etc)
  • Saving
  • Childcare and supporting family
  • Groceries
  • Loans and card payments
  • Subscriptions (like Netflix, gym memberships, etc)
  • Entertainment and eating out

When you're putting your budget together, you should keep your financial goals in mind – both ones in the near future and in the long term.

Once you've finished your budget, it's a good idea to come back to it regularly to review and update it. Your situation and income will change, and your budget should change with them to make sure you stay in control of your spending.

Chapter 2

Chapter 2

BUDGETING STRATEGIES

Read time

3 mins

The 50/30/20 budget

When you first set up your budget, a simple method you can use straight away is the 50/30/20 budget.

The 50/30/20 budget is an approach that organises your expenses into three categories:

  • Needs
  • Savings
  • Wants

When using this approach, you allocate 50% of your income to your needs – such as your mortgage and utility bills. Then you allocate 30% to savings and the final 20% to non-essentials and spending on things you enjoy.

Keep in mind that you might need to tailor it to fit your specific circumstances. If you're carrying significant debt, for example, you may need to allocate more than 20% of your income to those payments each month.

No matter how well you plan, budgets only work if you stick to them. Keep an eye on your spending and come back to compare it to your budget regularly.

 

Other tips

  • Online banking can help you keep a close eye on your incomings and outgoings.
  • Save any spare money each month to help cover the unexpected. We'll cover this more in our lesson on savings.
  • Take advantage of schemes such as Child Tax Credits to help you budget as a family.
  • It may be beneficial to spread your payments over a longer period. Be aware, sometimes this can mean you end up paying more in total so check with your providers the total payment you will be making.
  • Shop around for the best price to help reduce your spending and stick to your budget. There are a number of price comparison sites that can help with this.
  • Your spending doesn't need to grow at the same rate as your income. So whenever unexpected money comes your way – such as a pay rise or bonus – try to save as much of it as you can or use it to help reduce debt.
  • To keep on top of spending, you could split your money between different accounts. For example, you could keep an account for bills and an account for nonessential spending.

Scottish Widows Be Money Well is committed to providing information in a way that is accessible and useful for our users. This information, however, is not in any way intended to amount to authority or advice on which reliance should be placed. You should seek professional advice as appropriate and required. Any sites, products or services named in this module are just examples of what's available. Scottish Widows does not endorse the services they provide. The information in this module was last updated on 19th Jul 2022.

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