Manage your money with budgeting and banking options

Your first step to financial empowerment is to be able to plan your finances by working out your budget and understanding your banking options.

In this section, we’ll talk you through how to work out your household budget. That’s where you write down all the money that you have coming in and what you spend every month. Working out your budget will help you to take control of your finances to meet your financial goals.

Then, we’ll talk you through how to set up a basic bank account and steps to help you if you’re living on a low or reduced income.

• What’s the purpose of a budget?
• How to make a budget
• Expert tips to create a budget
• Banking options
• Living on a low or reduced income
• Frequently asked budget questions

What’s the purpose of a budget?

A budget shows you where your money is being spent and what money you have left over each month. It can help you to spot where you can make savings and make sure you’re covered for all the things you need to pay for.

You might hear some people call a budget an income and expenditure form or an I&E. That’s fine, as filling out a budget planner with all your income and expenses on is the easiest way to work out your budget.

To work out your budget, you’ll need to know:

• Monthly income – any money you get on a regular basis. If you’re paid weekly or fortnightly, then you’ll need to work out your monthly income
• How much you spend – include housing costs, bills, food etc. Bank statements or access to your online mobile banking app can be useful here to help as a guide.

How to make a budget

You can work out your budget either by printing a monthly budget planner or filling out a budget online.

Your budget needs to be as futureproof as possible. Consider those hidden costs like haircuts, dentist appointments or prescriptions, as well as making sure you have enough for a comfortable home and food each month.

The best online budget tools are the ones that work for you. Try one of the following.

• Printable budget planner – download and print out this PDF budget planner. You’ll need to do the sums at the end by taking your total amount you spend away from the money you have coming in.
• Excel budget planner – simply enter your information here and the spreadsheet does the sums for you. The last tab will show you how much money you have leftover.
• Alternatively, you can try Citizens Advice’s online budget tool or the Money Advice Service’s budget planner.

Frequently asked budget questions

1. What’s the difference between a personal and household budget?

A personal budget is just working out your own expenses and what you need to pay for. To get a true financial picture, it’s best to work out your household budget. This way you can see the total of household bills and all the money you have coming in and going out.

2. My budget shows that I don’t have any money left over, what should I do?

If you’ve completed your budget and it shows that you don’t have any money left over, it’s called a negative or deficit budget. This means that you’ve got more money going out than coming in. If this is the case, you should take steps to see how you can improve your situation.

• Use our benefits calculator to make sure you’re getting everything you’re entitled to.
• Visit our section on making the most of your money and reducing your spending to see if you can save money
• You may need to speak to any creditors you owe money to, explain your situation and see what’s possible. Do this by dealing with your priority debts first. Find out what they are in our which debts to pay off first guide.

3. How do I keep my budget under control?

Making sure a budget is sustainable is important. Yet, we all know that circumstances can change.

Try to build in a buffer when you work out your budget to plan for the unexpected. Have a look at our borrowing and savings guide for more on what to do if you do need to borrow money.

If the amount that you have coming into your household dramatically changes due to redundancy, retirement or illness, then you’ll need to redo your budget.

4. What’s the difference between fixed and flexible costs?

Fixed costs are regular expenses that you incur; and you’ll usually pay them monthly. The amount you pay doesn’t change – and you know it’s coming. They can include your rent or mortgage, utilities, internet services, insurance and phone contracts.

Flexible costs, on the other hand, do change. They include how much you spend on food, clothing, entertainment or getting your hair cut. When you’re looking at your budget, you need to allow for necessary flexible expenses and keep unnecessary ones under control. If you don’t, then they can have a habit of creeping up on you.

Banking options

Setting up a basic bank account

Basic bank accounts have all the same facilities as a standard current account, but you don’t have access to an overdraft. To open a basic bank account, you’ll usually need to a proof of identification and proof of address.

They can include:

• Proof of ID: passport; photo driving licence; HMRC tax notification letter; or letter confirming your benefit entitlement
• Proof of address: driving licence; tv licence; or a recent letter such as a council tax bill, statement from another bank, utility bill or letter about your benefits.

To open an online-only account, you can normally just take a selfie and a photo of either your passport and driving licence – they will do an Instant ID check and your account can be open in a matter of minutes.

Remember, banks aren’t under any legal obligation to give you an account. While they can’t use your credit file rating as a reason not to give you a basic account, they could use a reason like fraud or recent bankruptcy.

Banks that offer basic bank accounts are:

• Bank of Ireland – Basic Cash Account
• Bank of Scotland – Basic Account
• Barclays – Basic Current Account
• Clydesdale Bank – Readycash Account
• Cooperative Bank – Cashminder
• Danske Bank – Danske Basic
• First Trust Bank – Basic Bank Account
• Halifax – Basic Account
• HSBC – Basic Bank Account
• Lloyds – Basic Account
• Nationwide – FlexBasic
• NatWest – Foundation Account
• Post Office – Card Account
• Royal Bank of Scotland – Foundation Account
• Santander – Basic Current Account
• TSB – Cash Account
• Ulster Bank – Foundation Account
• Yorkshire Bank – Readycash Account
• Virgin Money – Essential Account

Bank accounts for budgeting online

Digital banking has fast become one of the more popular ways to bank. Until recently – it was app-only banks like Monzo and Starling who were miles ahead in terms of their app offering. However, that’s all changing.

Many high street banks like Lloyds, Santander, RBS and many more now offer digital tools to help you manage your money.

Typical digital banking apps can allow you to:

• Set spending budgets (Monzo is great for this)
• Create customized savings categories and goals
• Round up your transactions for savings. So, if you spend £9.70 in a shop – 30pence would automatically be added to your savings pot (Monzo, Lloyds and Halifax)
• Split bills with others (Monzo and Starling)
• See insights on spending (Santander, Revolut)
• View what money you have in accounts that you have with other banks using Open banking (Lloyds, Halifax and RBS)

Switching your bank account

If you have a debt with your current provider, and you are no longer able to meet contractual payments to your debts, then you should consider switching your bank account.

Otherwise, your lender has the right to offset. That means your bank can take money from your account to pay off the debts you owe them.

To switch your bank account before your lender authorises the right to offset, follow these steps:

• Open a new ‘safe’ account with a bank or building society you don’t currently owe money to. This just needs to be a basic instant access account where you can withdraw cash from and pay in wages and/or benefits.
• Move your money across to the new instant access account.
• Arrange for your wages and/or benefits to be paid into this new account.

If you owe money to one bank that sits under a holding group, you will want to avoid opening a new account under the same group as they could also remove money from you. You can find a list of linked banks and creditors.

Please bear in mind that although you are moving money from one account to another, you will still be liable for the account with debts attached to it and this will still need to be paid off.

Living on a low or reduced income

If your income, or someone in your household’s income, has been reduced – don’t worry, there’s help available.

You may find you’re living on a low or reduced income if you’ve recently been made redundant, can no longer work due to illness, are on furlough or have had your hours reduced.

Here are six steps you can take to handle living on a reduced income:

1. Maximise your income – check you’re being paid all the benefits you’re entitled to and see if you’re able to earn any extra cash
2. Reduce your spending – make sure you’re never paying over the odds on your bills with our handy free switching service
3. Work out your budget – make sure you know exactly what money you do have coming into the house, and what you need to pay for. Budgets help you stay in control and plan for upcoming costs
4. Get a handle on any debts – our section on understanding credit and debt will help you to prioritise which debts need paying first and gives you methods of paying off multiple debts
5. Contact your creditors – being open and honest with your creditors is important if you’re struggling. Our priority payments section helps you to understand next steps if you’re unable to make certain payments
6. Take control of your financial future – financial resilience is all about being prepared for what’s ahead. Have a look at our information on insurances and take some time to think about:
• Your long-term goals and how you can achieve them
• What can you learn from your recent experience?
• What do you enjoy in life now – take time to enjoy those things
• Seize the opportunity to take care of your mental health and physical wellbeing. Have a look at our section on taking care of your wellbeing at home

Get extra help if you need it

• Addictions support
• Mental health and wellbeing
• Physical health

It takes a lot of courage to deal with money worries. We hope our six steps to help when living on a reduced or low-income help. Don’t forget, we’re always here to help if you need it.