2. Building your budget:

The first step to taking control of your debts is to know where your money is going each month. This is why it’s important to have a good understanding of your budget – you’ll hear this word quite frequently when creditors or debt advisers are looking at your finances and working out how they can best help with your situation.

(If you have already completed your budget online in PlanFinder, you will have received a copy of it by email. If this is the case, you can skip straight to the bottom of this section to find out what to do next).

What is a budget?

Put simply, a budget is a spending plan based on the money you have coming in (income) and the money you have going out (outgoings).

By making a list of your income and outgoings, you will get a better understanding of your financial circumstances and see how much money you have leftover each month. The quickest and easiest way to work out your budget is to complete an Income and Expenditure form, also known as an I&E.

Your expenditure (or outgoings) are usually split into your fixed costs which are the things that cost the same each month (such as mortgage / rent, utilities and other household costs), and your flexible costs. Flexible costs are expenses such as food, clubs and travel costs which could vary month to month. At the end, you’ll have created your monthly budget and will be able to see how much money you have leftover (this is your disposable income; or ‘surplus’ as it’s sometimes referred to).

How to complete an I&E:

It’s very important to ensure that your budget is sustainable going forward, as it’s likely that you’ll need to live this way until all of your debts are repaid. Ensuring your budget is sustainable means that you can live comfortably enough to not worry about meeting your essential living costs – or have to consider taking out further credit.

So you should think carefully when you’re completing your budget and not necessarily enter what you are spending at the moment. You may be cutting back considerably on things such as food and toiletries in order to keep up with your payments to your unsecured debts – but you need to ask yourself how long it will be possible to do so. At some point, you will need to consider the cost of things such as hair appointments, dentist appointments and prescriptions, as well as allowing yourself enough money for food and leisure each month.

Please think about how much you would ideally spend in each category every month to ensure you won’t struggle, as this will be the best representation of a sustainable or realistic long-term budget.

To make it easy, we’ve made two I&E forms for you to complete; simply choose which you’d prefer:

  • I&E spreadsheet – you won’t even need a calculator for this one, as the formulas in the spreadsheet do all the hard work for you! Simply enter your information and the last tab will show how much money you have leftover.
  • Downloadable I&E – if you prefer, you can download and print out our PDF version. You’ll need to do the sums at the end yourself by taking your total expenditure away from your total income.

Whichever you choose, try to fill it in as accurately as you can – you may find that having your previous bank account statements to hand as a guide will really help.

Working out monthly amounts:

When completing an Income & Expenditure to send to your creditors you will need to ensure that you do it on a Calendar Month basis. This is different to 4-weekly. Most benefits are paid 4-weekly, so you’ll need to ensure you enter the average monthly amount you receive.

To convert weekly income to calendar month

  • Weekly income x 52 and divide by 12
  • £20 per week x 52 and divided by 12 = £86.67 per calendar month

To convert fortnightly income to calendar month

  • Fortnightly income x 26 and divided by 12
  • £40 per fortnight x 26 and divided by 12 = £86.67 per calendar month

To convert 4 weekly income to calendar month

  • 4 weekly income x 13 and divided by 12
  • £80 per 4 weeks x 13 and divided by 12 = £86.67 per calendar month

What does my budget show me?

Negative budget:

Once you’ve completed your budget, it may show that you have a deficit – this means that you have more money going out than you have coming in. If this is the case, these are the steps you should take next:

  1. Firstly check you are claiming all of the income that you are entitled to. If you have recently had an income shock such as redundancy or separation you may be eligible for certain benefits. Use our Benefits Calculator to find out, and have a look at our Maximising your Income section to find out other ways to bring more money into the household. 
  2. It’s also worth seeing if there are any areas you can cut-back on, such as utilities or broadband packages. Go through our Reducing your Spending section to see if there are areas in which you can save.
  3. After you’ve taken those steps, if you still don’t have any money leftover, you will need to speak to your creditors to explain your financial situation and ask what help and support they have available. You can use our template letter entitled ‘Asking for repayment relief’ to do this. It’s important that you don’t feel pressured into making payments to your unsecured debts that you can’t afford. 
  4. BEFORE YOU CONTACT YOUR CREDITORS: If you have a debt such as an overdraft with the bank you have your current account with, we strongly suggest you switch banks – find out more in our Guide to Switching your bank account.
  5. It’s also important that you always ensure you deal with your priority debts first as these have more serious consequences if you don’t pay them. Have a look at our Guide to different types of debts for help with mortgage or rent arrears, council tax arrears and other types of priority debt.

Positive budget:

Your budget calculation may show that you have a surplus – this is a positive balance and means that you have some money leftover each month after paying for all of your outgoings.  If this is the case, then you can take the next steps to get your debts under control:

  1. Get in touch with all of your creditors to explain you are experiencing financial difficulty and ask them for some Breathing Space on your accounts whilst you work out how to deal with your debts. You can use our template letters to help you.
  2. Read through the Guide to different types of debts and use the Creditor List to make a note of how much you owe to your priority debts (if anything).
  3. You’ll then know how much you have leftover to pay towards your unsecured debts. You can use our guide to Setting up a Repayment Arrangement, or visit the Debt Solutions page to find out which other options you may be eligible for. Use our template letters on Token Payments or Making an offer of payment, to make payments to your unsecured debts. We would advise making a minimum of a £1 token payment if that’s all you can realistically afford, or offer a pro-rata payment based on the amount you have leftover. This is explained in the Setting up a Repayment Arrangement section. 
  4. BEFORE YOU CONTACT YOUR CREDITORS: If you have a debt such as an overdraft with the bank you have your current account with, we strongly suggest you switch banks – find out more in our Guide to Switching your bank account.
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