Budgeting and money management
A good budget is the foundation of any debt plan. Learn how to build a realistic budget, understand your spending, and make your money work harder.
Budgeting is not about restriction — it is about understanding. When you know exactly where your money goes each month, you can make informed decisions, prioritise what matters, and find the money to deal with your debts. A good budget is honest, realistic and flexible.
If you are in debt, a budget is also the tool that tells you what you can afford to repay. Without one, you risk offering creditors more than you can manage or falling behind on essential bills.
How to build a budget in 5 steps
Track your income
Write down everything that comes in each month — wages, benefits, pensions, and any other regular payments. Use your take-home pay (after tax).
List your essential spending
Rent or mortgage, council tax, utilities, food, travel to work, childcare, and essential insurances. These are the costs you must pay first.
Review discretionary spending
Look at bank statements from the last three months. Identify subscriptions, eating out, entertainment and other non-essential spending where you could cut back.
Calculate disposable income
Subtract essential spending from income. The remainder is what you have available to pay towards debts — or to save if you have no debts.
Review regularly
Your budget should evolve with your circumstances. Review it every few months or whenever your income or spending changes significantly.
Essential vs discretionary spending
When building a budget for debt purposes, it is important to distinguish between essential and discretionary spending. Essential spending covers the basics you need to live and work — housing, food, utilities, council tax, and travel to work. Everything else is discretionary.
This distinction matters because creditors and courts use it to determine what you can afford. You will not be expected to live on nothing, but you may be asked to justify discretionary spending. Being honest about your spending now will save problems later.
Practical money-saving tips
Use the 50/30/20 rule as a guide
Roughly 50% of income for needs, 30% for wants, and 20% for debt repayment or savings. Adjust these proportions based on your debt level.
Build a small emergency fund
Even £500–£1,000 saved can prevent a minor emergency from turning into a new debt. Start small and build gradually.
Prioritise high-interest debts
If you have multiple debts, paying off the highest-interest one first (while maintaining minimum payments on others) can save money over time.
Review subscriptions and direct debits
Cancel subscriptions you no longer use. Many people find they are paying for services they have forgotten about.
This page provides general information only. It is not personalised financial or legal advice. Your situation is unique — please seek guidance from a qualified, FCA-authorised debt adviser before making decisions about your debts.
Related guides
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