The cost of food is rising, bills are increasing, and rent is higher than ever. For many, the cost of living crisis isn’t going anywhere anytime soon.

In January 2025, over 50% of British households reported that their cost of living had increased since December 2024. With less disposable income available, it’s more important than ever to know how to budget your money.

EASY AS HACK 

A general rule that’s handy to follow is 50% of money should go towards your needs, 30% towards your wants, and the remaining 20% should go towards savings or any debt payments.

 

Why is budgeting important? 

A budget is a financial plan that helps you keep track of your expenses, save money and plan ahead. You can budget in many ways – it’s just about finding the right way for you.

There are many benefits of budgeting your money. You can:

  • Track where your money is going
  • Understand what you’re spending most money on and where you can spend less
  • Understand what you can and can’t afford
  • Manage debt and loans
  • Manage unexpected bills 
  • Save money

how to start budgeting

Here are six steps to get you started with budgeting:

1. set clear financial goals

What’s the aim? Do you need to pay off a credit card, save for your wedding or save for retirement? Or do you want to increase the amount of savings you’ve got? Either way make sure you’ve got a clear goal to work towards.

2. work out your total income

Sit down and work out your total monthly income. Check your latest payslip and note down your salary. Then add any other income you receive. This might be from student finance grants, pension or payments for any freelance work.

3. make a list of everything you spend each month

Separate your monthly spending into wants and needs.

  • Wants = things that are nice to have e.g. Netflix subscription, dining out, entertainment, clothes shopping, drinks
  • Needs = non-negotiables including rent/mortgage, bills, groceries, transport and insurance etc

Note down your monthly spending across both categories and don’t forget to include things like birthdays, holidays, car repairs etc.

Once done, take away what you spend from your income. If you have money left over after everything’s paid for, you’ve got a budget surplus. If you spend more than you’ve got coming in, you’ve got a budget deficit, which means it’s time to start cutting down on spending.

4. track your expenses

You can use an Excel spreadsheet or budget planning apps like Mint or Fudget to properly track your expenses. Similarly, you can use your online banking app to see how much money was spent in a month, and where it went.

5. create a budget plan

The amount of money you spend on your mortgage/rent and on other fixed payments will be the same each month, but make sure you’re still allocating a certain amount of money for the rest of your needs and wants. 

A general rule that’s handy to follow is 50% of money should go towards your needs, 30% towards your wants, and the remaining 20% should go towards savings or any debt payments.

The split won’t look the same for everyone though. Some people might be able to put 50% towards savings and split the remaining half between wants and needs. It simply depends on your circumstances and your financial goal. Create a plan that works for you.

6. review and adjust regularly

Once you’ve created a budget plan, make sure you review it at the end of the month.

Did you stick to the budget? Did you overspend or underspend anywhere? Are there any areas where you can adjust spending? Review and make adjustments to the following months budget.  

Don’t forget to also check in on your financial goals and see what progress is looking like. This will motivate you to stay on track.

set a realistic budget

Follow the six steps we’ve just shared to help you kick start your budgeting journey.

deal with utility bills

Facing high energy bills? Don’t worry, there are ways you can make your home more energy efficient. This includes installing smart meters to help monitor your energy usage and using LED bulbs throughout the home.

And if you’re struggling to pay your gas or electric bills, contact your suppliers to let them know. They are obliged to help you come to a solution. This is far better than missing payments, which will affect your credit score, which could make it hard to get credit in future.

Similarly, if you can’t pay your water bill, speak to your supplier. Most water companies offer ways to help customers who talk to them about problems.

deal with arrears

If your debts are starting to pile up, then it’s important to prioritise what you pay back first, namely mortgage or rent arrears.

If you’re unable to pay your rent, it’s important to get in touch with your landlord to let them know the situation. You may be able to come to a payment arrangement that’ll help you to pay off your arrears.

If you’re struggling to pay your mortgage, then there are government schemes that offer help. You may also be eligible for housing benefit

pay with cash

We all know credit cards can easily land you in debt. It can help to leave them at home when you go shopping. Instead, try taking out enough cash for your weekly shopping.

Some bank accounts allow you to put money aside for essentials in separate sub-accounts.

If you do use a credit card, set up a Direct Debit for the full monthly balance, or for as much as you can afford to repay.

If you’re falling behind with credit card payments, then contact your credit card provider to explain and tell them how much you can afford to pay each month. But remember that your priority should be to deal with any arrears first.

schedule bill paying days

Set time aside to pay bills on a regular basis in the same way that you schedule time for other things. This will make you less likely to miss a due date.

put money into seperate pots

Some bank accounts offer features that let you set up different pots for specific purposes, which means you can separate spending money from your savings. Check if your banking account offers these features and start moving money to help you stay organised.

best apps to track household expenses

Want a bit more support with tracking household expenses? Here are a few apps that can help you out…

mint

You can manage nearly every element of personal finance, from income and spending to your credit score.

  • Free version available
  • Good transaction tracking, trend graphs, and budgeting tools
  • Includes credit score

fudget

A monthly budget planner and money tracking app which features a daily expenses and income tracker to stay on budget monthly or weekly.

  • Free version available
  • You can create unlimited budgets
  • Can share your account with someone else, helping you budget together

emma

Emma links to bank accounts and other financial products, analysing the information to make suggestions on wasteful subscriptions you could cut.

  • Easy to use
  • Four different versions available
  • Rent reporting feature where your monthly rent payment is reported to credit reference agencies
  • Can connect two bank accounts or an unlimited amount with the Pro and Ultimate version

snoop

Connect your bank accounts and credit cards to Snoop, which tracks your regular bills and flags when they're higher than usual, sometimes offering up cheaper providers you can switch to. 

  • Daily balance updates and automatic spending categorisation 
  • You can set up a weekly spending report and track a budget for your monthly spending
  • Contract renewal reminders
  • Exclusive product switching deals, as well as daily personalised money suggestions

buddy

Set up a budget and keep track of your expenses, either by yourself or together with your loved ones.

  • Share your budget with others
  • Track expenses
  • Set up spending and savings accounts
  • Cancel unwanted subscriptions

plum

Use artificial intelligence to save money.

  • Lets you know if you’re overpaying on your regular bills and suggests ways to save money
  • More than one plan available
  • Offers the opportunity to invest your money as well as earn cashback
  • Contains a spend tracker
  • Automated deposits – Plum's algorithm will set money aside little and often

 

What should you do if you are overspending each month? 

Review your spending if you find yourself going over budget. Look at your bills to see if you’ve been overcharged or if there’s ways to reduce the amount you have to pay. You might want to consider switching energy suppliers if bills are too high as you might get cheaper tariffs elsewhere.

Cut back on unnecessary spending too. We know this is easier said than done, but sometimes tough action is needed. Do you really need that Netflix subscription? Can you dine in with friends instead of going out? Review all your impulse purchases and cut back on stuff you don’t really need or want.

If you have cut back on spending but are still over budget, you might want to consider ways to increase your income. Is there a side hustle that can make you some money? Maybe pick up some pet-sitting jobs in your free time or why not sell some of your clothing online?

What help can you get if you are struggling to pay for bills or food? 

In October 2024, a third (34%) of households, or 4 million, took out loans to pay for food, housing or essential bills, but there is help available.

The first step is to check if you’re eligible for any benefits. You can do this by visiting the UK government website.

If you’re unable to pay bills or are having trouble paying off any debts, contact National Debtline or Citizens Advice Bureau for confidential advice on managing debt. You can also contact your energy supplier and ask about any schemes available to help make payments easier.

Food banks are also able to help when needed. Check if there’s one in your local area – sometimes you’ll need to be referred by someone such as a GP or social worker, or you may find there is an independent, local food bank which can help you without a referral. Just contact them directly and they’ll be able to help.

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FAQs 

what is the 50/30/20 rule?

The 50/30/20 rule helps divide your monthly income after tax into three clear areas. 50% of your income is used for needs, 30% is spent on any wants and the remaining 20% goes towards savings. [1]

how much should i save each month?

Generally, it’s suggested you save 20% of your income. However, this will depend on your financial goals and your individual circumstances. [1]

 

Sources

[1] https://www.lloydsbank.com/help-guidance/support-and-wellbeing/managing-your-money/50-30-20.html