What is budget planning?

Budget planning involves working out a reliable budget to measure your spending against the money you have coming in. This will allow you to plan and keep track of how you use your money.

Why does budget planning matter and how can it help me?

Budget planning is an important part of money management and can help you to monitor your financial situation effectively from day to day, week to week, month to month or over the longer term. Putting together a budget plan can result in you being more in control and leave you feeling more confident when dealing with your finances.

Being able to plan using a budget will help you to make sure that you pay your essential bills on time and keep up with any other regular payments. Long-term budget planning can also help you to save money, improve your financial health, and achieve your financial goals.

Planning your budget matters as it allows you to clearly see where your money goes. It breaks down where you are spending your money, including any areas of over-spending or under-spending. Over time, it can highlight where adjustments may need to be made, including importantly where you might be able to cut costs. It also allows you to:

• prepare for the future and plan for future spending; and
• protect yourself against the stress that unexpected bills or increased costs can cause.

Many people are worried about money because of the cost of living or changing circumstances.  Completing a budget, and then periodically revisiting and maintaining this as required, can also help with your decision making and allow you to identify any support that you may need.

Whether you are just starting out or you are already struggling with payments, budget planning leaves you better prepared to move forward. Going through a budget will also help you to work out what money, if any, is available to pay towards any debts you may have. If the money you have left over after paying your essential costs will cover the minimum contractual payments you need to make, you are solvent. If not, you are insolvent and a range of different solutions might be available to you depending on your circumstances. See our Ways to clear you debts guide to find out more.

You will need a budget to work out the best solution to deal with your debts. Creating a budget is always one of the first steps when getting specialist debt advice. This can support your recovery from any debt situation and put you in the best position to deal with your debts. As a registered charity, National Debtline provides free, impartial debt advice to more than 100,000 people each year, and our expert advisers have been helping people get out of debt for over 30 years. Millions of people in the UK have financial difficulties. We know that this can be tough to deal with. It can sometimes feel overwhelming, but there are solutions. If you need a fresh start, there are ways to get one.

How to plan and complete a budget step by step

We know that, especially if you are struggling with debt, writing down your income and outgoings might feel like the last thing you want to do. But doing a budget might be easier than you think.

You’ll need to list in detail:

• the money you have coming in (your income); and
• the money you are spending (your essential outgoings).

You need to take into account all of the money you receive and all of your commitments to get an accurate picture of your money situation. To make sure that your budget is filled in correctly, there is some more detail about the steps that you will need to follow below. 

Step 1 Identifying the type of budget and gathering all relevant paperwork

To get started, you first need to know which type of budget (or budgets) to complete. It is important to complete the right budget for your situation. For example, you need to work out if you need a personal budget (just for you and your personal finances) or a household budget (for your partner/family too).

A personal budget is appropriate if you live alone, or if you don’t live with a partner but live with other people you don’t financially support. Unless you deal with your finances and any debts you may have separately, if you live with a partner, we recommend that you fill in a household budget together. This means that you need to include all the income and outgoings for you and your partner and family. This does not mean that your partner is liable to pay any debts you may have or vice-versa. But by completing a household budget, you can make sure that all your essential costs are accounted for.

Creditors often want to know you are making a fair offer to them before they accept reduced payments; splitting your household bills fairly helps to show you are doing as much as you can. Contact us for advice if you are unsure who to include in your budget, or if you live with a partner and are not dealing with your debts together. We can also explain how to split any money that is leftover on a joint budget if your partner doesn’t want to pay towards your debts.

If you are self-employed as a sole trader or a partner in a business partnership, before you can plan what to do, you will also need to complete a business budget to work out your takings (drawings) from the business after you have put aside your ongoing tax and National Insurance contributions. Contact our sister organisation Business Debtline for advice about business budget planning.

To make filling in your budget easier, it can also help to first gather all relevant paperwork together (in an envelope or folder if needed) including:

• payslips and benefit award letters; 
• household bills and bank statements (or making sure that you can access to your banking app on your phone); and
• bills & receipts for things you usually pay for in cash.

Gathering paperwork covering a few months can also help with budget accuracy as you can keep track of any quarterly expenses. Add any new statements and letters to your envelope or folder as you get them. Then you will always have up-to-date information to hand.

Although they are separate to any essential outgoings (and only budgeted for after any essential outgoings), it can also be helpful to gather information about any debts you may have. Debit and credit card statements can tell you how much you owe, the interest rate payable and the minimum contractual payment for each debt. We can check this against the money you have left over after paying your essential outgoings, to help us with tailoring advice on debt solutions.

If you haven’t kept the letters from your creditors, or need more up-to-date figures, contact your creditors and ask them how much you owe. If you would prefer not to speak to them on the phone, send them an email or letter instead. Don’t worry if you can’t remember who you owe money to, or if you can’t find your creditors’ details. We can discuss ways of finding this information, so contact us for advice.

Step 2 Working out your household income

List all the income for you and your household. This includes any of the following income you may get.

• Usual wages or salary after tax and national insurance for you or your partner. Overtime should not be included in your budget unless it is regular, in which case an average of any overtime can be added.
• Benefits that you or your partner are receiving, including Child Benefit. Also remember to add any child maintenance received if applicable.
• Any pensions that you or your partner may be getting, including the State Pension.
• Any contributions from non-dependants who live in your home, such as grown-up children and elderly relatives.

Step 3 Working out your household outgoings

List all the outgoings for you and your household. This includes outgoings in the following areas.

• Essential spending including household bills like your mortgage or rent, council tax and utility bills, and regular payments like insurance, care and health costs and travel expenses.
• Communication and leisure costs. This includes costs for your home and mobile phones, internet and TV packages, hobbies and leisure activities, gifts and so on.
• Food and housekeeping costs. This includes money for food, cleaning materials, nappies, house repairs and so on. This area also includes any costs you may have for alcohol and smoking products. Don’t forget to include any extra housekeeping costs for any non-dependants if applicable.
• Personal costs. This includes costs for clothing, footwear, toiletries, hairdressing and so on.
• Other costs. This includes outgoings that are not covered anywhere else in your household budget.

Although you can use figures covering different periods including yearly if costs change regularly, it is best to use monthly figures in your budget if you can. If any of your figures are weekly, fortnightly or four-weekly or yearly, you will need to work out the monthly amounts. This is because any creditors will expect to see how much you can offer to pay them monthly if you are struggling with any debts after paying your essential outgoings. If you’re not sure how to convert amounts, get free help from a National Debtline adviser or use My Money Steps.

Step 4 Checking if you can increase your income and making sure your outgoings are reasonable

As well as making sure that your budget is accurate, it is also a good idea to check if there is anywhere that you can increase your income or reasonably reduce your essential outgoings. This makes your budget more robust and potentially gives you more room for spending on things that you need.

Maximising your money can be especially important if you don’t have enough money to pay for essentials such as your home, food or travel to work, even before you pay any debts. If you find that you have a ‘deficit’ budget (where you have more going out than coming in even before making any payments on your debts) or you have started missing payments on your household bills or debts, contact us for advice.

Steps to increase your income could include:

• checking that you are receiving any benefits, status discounts or child maintenance that you are entitled to;
• checking if any charitable grants or government support might be available; and
• making sure that any non-dependant is paying their fair share towards the household expenses.

You can use the Turn2us benefits calculator to check if you are entitled to any benefits. The Turn2us grants search tool may also help to find charitable organisations that could help you depending on your situation.

Steps to reduce your costs could include:

• shopping around for your energy, media, insurances or considering your travel arrangements or where you do your shopping;
• looking for potential savings in relation to hobbies, leisure actives or other ‘flexible’ costs (any costs that vary from month to month); or
• seeing if reasonable adjustments can me made anywhere else in your outgoings.

Effective budget planning can also include:

• scheduling and managing bill payments to coincide with payday/benefit payment dates;
• setting up separate ‘jam jar’ accounts for specific areas of your spending (such as food, clothing, leisure);
• considering using mobile phone apps to help simplify budgeting; and
• reviewing how you pay for bills and everyday items.

See our Making the most of your money guide to find out more. If you are not sure about anything or you are planning budget changes, contact us for advice.

Tools to help with budget planning

My Money Steps

My Money Steps is our free online budget tool which is available to use 24/7. If you are in paid work or on benefits, it can help you with budget planning as well as creating a plan to manage and deal with any your debts you may have. It can also give you tailored advice based on your circumstances.

My Money Steps helps you:

• create a budget that gives you a clear picture of your income and expenses;
• explore your options for managing money and dealing with debt; and
• take control of your finances with step-by-step guidance.

Click on the ‘Get started’ button and use your email to register with My Money Steps.

Budget planning for different situations

Occasional expenses

Lots of people think that completing a budget planner means they will not be allowed to spend money on anything but bills and debts. This is not the case. Your budget needs to be realistic and sustainable, so it should include costs for things such as hobbies, pocket money and leisure activities.

You also need to make sure that you include amounts for things you pay for occasionally such as vet’s bills, gifts, car repairs and clothing (if not also ‘one-off’ spends and small purchases that you may still use cash for). These costs add up and can easily be overlooked or underestimated.

Your budget needs to reflect how much you actually spend. Don’t be tempted to include figures that are less than you are really spending, or to leave some costs out of the budget.  While it may be possible to go without some things in the short term, your budget isn’t going to work unless you can stick to it.

Saving for emergencies and other scenarios

In terms of planning ahead, it is also a good idea to save some money if you can. This will not only help with occasional expenses, it can also help with emergencies and other scenarios that are unexpected or difficult to plan for. This could include for example an urgent car or house repair, or perhaps replacing your washing machine because it is beyond repair.

By working out how much extra such things might add to your outgoings each month when filling in your budget and building up a savings pot, you can effectively spread out the cost of such expenses. This can make these types of scenarios much easier and less stressful to deal with if or when they happen. Budgeting for emergencies may also mean that you are less likely to fall behind with essential living costs when emergencies or occasional expenses crop up and need to be dealt with. See our Savings guide to find out more.

When to get help and getting free help with your budget

Thinking about finances and filling in a budget can be quite daunting, but you don’t have to do everything at once. Many people fill in their budget in stages and take a breather between sections. Do what works for you. The most important thing is that you keep going. If our online tool isn’t right for you or if you’re not sure about your budget figures or if your spending is realistic, we offer other ways to get support including via webchat or over the phone.  

For budgeting queries, it is best to call and speak to one of our advisers. They can give you free help to work out an accurate and sustainable budget based on your circumstances. You may also need some extra help to fill in your budget if your circumstances have recently changed, or are about to change, and you are worried about the impact on your income or outgoings. If so, contact us for advice. No matter your situation, whether you are up to date or behind with your important bills or any debts you may have, we are here to support you and we can help you to find the best way forward.

FAQs

What is the best free budget planning software, or where should I look for a budget planning template?

There are many budget planning apps or budget planning tools out there including on well-known consumer websites as well as banking websites. MoneyHelper have a Budget planner as well as guides on budgeting and saving.

If you are struggling with payments on your debts, use our online budget My Money Steps. It is user friendly and provides tailored debt advice as well as helping with budget planning. If you need to call and speak to an adviser, they will also be able to see your budget and any advice provided to help you move forward with your situation.

What if my income varies from month to month?

You can either go with your base figures or average figures over a period of time. It is important not to rely on ‘best case scenario’ figures, as if your income is lower this can leave you short and cause you to fall behind with your important bills or mean that you get into debt (or further into debt). If you budget for your lowest monthly income, you will get a more accurate picture of where you are or where you need to be to cover your important bills. If you can still cover the important bills and then things improve, you can revisit your budget and put any extra money into a separate savings account to cover bills and debts if your income drops in the future. This will also help with any unexpected costs or emergencies going forward. If you are worried about variable income, contact us for advice.

Why do I need a household budget and not a personal budget?

A personal budget is appropriate if you live alone, or if you don’t live with a partner but live with other people you don’t financially support. Unless you deal with your finances and any debts you may have separately, if you live with a partner, we recommend that you fill in a household budget together. This means that you need to include all the income and outgoings for you and your partner and family. This does not mean that your partner is liable to pay any debts you may have or vice-versa. But by completing a household budget, you can make sure that all your essential costs are accounted for.

Creditors often want to know you are making a fair offer to them before they accept reduced payments; splitting your household bills fairly helps to show you are doing as much as you can. Contact us for advice if you are unsure who to include in your budget, or if you live with a partner and are not dealing with your debts together. We can also explain how to split any money that is leftover on a joint budget if your partner doesn’t want to pay towards your debts.