The cost-of-living crisis is causing daily life to become more expensive for everyone. So how could you use a budget to ease the impact on your household finances?
Many people are looking for ways to help manage their money and are starting to use some of the tools available. Price rises mean your outgoings have probably increased recently, so even if you already have a budget, now may be a good time to review it and make any adjustments you think are right for you.
Here are six reasons why.
It can give you control over your spending
A budget involves looking at your current income and outgoings – often by checking things like your payslips, receipts, bills and bank statements. When you create a budget, you usually get a clearer idea of what you can afford, so you don’t have to rely on guessing. From there, you can break your spending down into categories (like ‘food’, ‘mortgage’ and ‘cost of running a car’) and see how much money you need to cover them. By showing you where your money’s going and where it needs to go, a budget can help you prioritise what you spend your money on.
It might prevent overspending
By taking a closer look at your income and expenses, you might be able to see if you’re overspending. For example, you could come across a subscription service that you don’t use much and decide to cancel it. You may realise you’d benefit from switching to a cheaper mobile phone tariff (you can use a comparison site like USwitch to check this), or notice you could scale back on some small, non-essential purchases.
Once you’ve identified any overspending, you may find ways to cut some of your costs and fit them into your budget going forward. For example, The Money Saving Expert has advice on how to make your TV-watching habits less expensive. If you’re looking for more tips on how to manage your money, you can read our recent article.
It could help prepare for emergencies
We understand that life is unpredictable, and it sometimes throws challenges at us all. With a budget, you may be able to prepare for unexpected costs in the future while still covering your costs for the here and now. Anything you can afford to set aside could help reduce financial strain if emergencies – like job loss, illness or home repairs – crop up. Even putting away small amounts of money at a time can give you a cushion for when things go wrong.
The Money Advice Service has tips on how you could steadily build an emergency fund while still covering other expenses in your life.
It can help to manage debt
Making a budget can help you work out what you can put towards any debts you might have.
Budgets are usually designed to help make sure you’re not spending more than you can afford. This may make you less likely to borrow money to cover your costs – so you could find that it prevents debt or further debt.
If you want more information on debt and repayments, the charity National DebtLine offers several debt advice fact sheets, as well as webchats with expert National DebtLine advisers.
It can improve your financial wellbeing
We know this is a difficult time for people and money is a common cause of stress in many households. Since budgets are supposed to help people cover the cost of living and prevent overspending, having one might make you feel more confident about your financial situation. Knowing your outgoings aren’t greater than your income could ease debt concerns and make you feel less overwhelmed.
If you’re having financial difficulties, we have some advice and resources, including links to check if you’re eligible for government support.
It can help you save for the future
Many people consider pensions to be vital part of preparing for later life. Knowing what your current financial situation looks like could help you make decisions about how to manage your pension plan.
You can check your pension savings and make changes that might benefit you on our app and online dashboard. You can find out more about our online services on our website, or you can log in if you're already registered.
You might also choose to check what your workplace pension plan has to offer – which could help you save more money for the future. Some employers offer more than the minimum payment, and others may agree to match your payments, so it’s worth checking with them to see what’s possible. You can find out more about workplace pensions on GOV.UK.
Remember your pension is an investment, its value can go down as well as up and you could get back less than was paid in.
How to create a budget
You can make a budget in different ways. Some people may keep a note of their finances in a spreadsheet – like the one available from The Money Saving Expert – while others may opt for a pen and paper. There are also free online resources you can use. MoneyHelper’s budget planner gives you a place to record your expenses. It then provides a breakdown of your spending and can offer you personalised advice. You can even create an account and save your budget plan. Citizens Advice also has a free budget-planning tool, where you can check if your outgoings are greater than your income.
Help and support
We know that having a budget can’t change high inflation rates, and some people will still find this time challenging even if they rigidly stick to a plan.
The charity Turn2us has a free Grants Search tool. You can use this to see if you’re eligible for any charitable grants. It also offers information on how you might be able to get help with your energy bills. On the Citizens Advice website, you can check to see where you might get help with essential costs.
The information here is based on our understanding in September 2022 and shouldn't be taken as financial advice.
Standard Life accepts no responsibility for information on external websites. These are provided for general information.