How to budget

Last updated: 12/12/2023

The cost of living crisis is impacting families all over Scotland. The rising costs of essential goods and services, including housing, utilities, and groceries can make it harder to manage money and difficult to meet basic needs.

A household budget can help you see what money you have coming in and what areas you are spending on and allows you to keep track.

A household budget is like a plan for how you’re going to use your money. It helps you decide where your money will go each month, making sure you have enough for the important things and maybe even some fun stuff.

Your frequently asked questions about the cost of living

Our advice and information team receive questions from single parents around Scotland every day.

Take a look at the Frequently Asked Questions and Answers about the rising cost-of-living. 

Getting started

It can be overwhelming when thinking about sorting your finances but choosing a time where you can sit and take time to go through things without being disturbed can help. It can also help to have all the information you need in front of you. So, grab a cuppa and your bank statements, letters and any other information and let's work through this!

1. Take a deep breath

It’s okay to feel overwhelmed. Take a deep breath and remind yourself that you’re taking a positive step towards financial control. Gather together any bills, benefit letters, bank statements and any other information that may help you create your budget. If you feel that your mental health is being impacted by money worries, there are organisations you can speak to such as StepChange. You can also speak to our advisors through our channels, who would be happy to talk to you and answer questions on budgeting and money.

2. List your income

Make a list of all the money you have coming in every month and the dates of payment. This will help you make sure you have adequate cash flow over the month and don’t leave yourself short:

  • Your monthly take-home pay.
  • Any benefit amounts you receive and details of how often they are paid.
  • Any additional sources of income (bonuses, maintenance etc.).

3. List your expenses

Fixed expenses

Fixed expenses are regular, predictable costs that you have to pay consistently every month. These are usually necessities and typically don’t change in amount, at least not in the short term. In simple terms, fixed expenses are the bills and payments that stay the same month after month, making them easy to plan for in your budget.

  • Fixed Expenses:
    • Rent or mortgage payment.
    • Utilities (electricity, water, gas, internet, etc.).

Variable Expenses

Variable expenses are costs that can change from month to month and are often discretionary, meaning you have some control over how much you spend on them. These expenses can fluctuate based on your choices and needs. In simple terms, variable expenses are the day-to-day or month-to-month costs that may go up or down, depending on your lifestyle and decisions. For example:

  • Groceries: The amount you spend on food can vary based on your meal choices, where you shop, and whether you dine out.
  • Dining Out: The money you spend on eating at restaurants or ordering takeout.
  • Entertainment: Costs associated with leisure activities, such as movie tickets, concerts, or other forms of entertainment.
  • Clothing: Expenses related to buying new clothes or shoes, which can vary depending on your shopping habits.
  • Transportation: Costs for fuel, public transportation, or rideshare services. These can vary based on your travel needs.
  • Hobbies: Money spent on activities you enjoy, such as sports, crafts, or other hobbies.
  • Personal Care: Expenses for items like toiletries, haircuts, or beauty products.
  • Gifts and Celebrations: The amount you spend on gifts for birthdays, Christmas, holidays, or special occasions
  • Travel: Costs associated with travelling, public transport or holidays.
  • Utilities (Variable Portion):While most base utility costs are fixed, there may be variable portions, such as extra electricity or gas usage in the winter for heating and lighting.
  • Christmas expenses: During Christmas you may find your variable expenses are higher than in the Spring.
  • Holiday Expenses: You may find during the summer holidays your expenses are higher due to your children being off school, taking part in activities and eating more lunches at home.

4. Prioritise essentials

Prioritising essential spending is crucial for ensuring that you cover your basic needs and maintain a stable living situation for you and your children. Here’s are some tips on how to prioritise essential spending:

  • Start by identifying expenses that are non-negotiable and directly impact your well-being and safety. These typically include: housing, electricity, gas and groceries.
  • Ensure you allocate funds for basic necessities like:
    • Groceries: Plan for nutritious and essential food items.
    • Healthcare: Include money for medications, sanitary car, nappies and toiletries.
  • If you rely on transportation, allocate money to cover Fuel or Public Transportation- Ensure you have the means to get to work or other essential places.

5. Deal with debt

It is important to make sure you budget for priority debts. Priority debts mean you could lose your home, have your energy supply cut off, lose essential goods or face legal action if you don’t pay. They include things like: rent and mortgage.

  • If you have debts, prioritise making payments, if you can. It can be easy to fall into a spiral of debt.
  • Make a comprehensive list of all your debts. Include the name of the creditor, the outstanding balance, the interest rate, and the minimum monthly payment.
  • If you need more help and advice about dealing with debt see our page What to do if you are in debt

6. Start small

If the idea of budgeting for an entire month is overwhelming, start with a shorter period, like a week. This can make the process feel more manageable.

  • Making a budget can help you see areas where you can cut back. It can be hard to see where you spend money if you don’t list it down.
  • Track your spending for a week or a month without making any changes. This will give you a clear picture of where your money is currently going.

7. Set realistic goals

Having a reason to create your budget can help you stay on track. These goals can be as simple as having extra money at the end of the month or as grand as saving towards a dream holiday. The key thing is to start small and build on that.

  • Define short-term and achievable financial goals. These could include paying off a small debt, saving for a specific purchase, or creating an emergency fund.
  • Do not be disheartened if you miss your goal one month, just get back on track the following month.
  • Acknowledge and celebrate your achievements, no matter how small. Every step toward better financial management is a positive one.

8. Save for Fun and Emergencies

Your budget isn’t just about bills. It’s also about saving some money for fun things like movies, games, or a day out. Plus, it’s smart to save a bit for emergencies, like if your washing machine breaks or needs replaced.

  • Treat your emergency fund as a non-negotiable expense in your budget, prioritising it alongside other essential bills, will help you to build up the pot.
  • It is important to have money for treats, not just for your kids but for yourself. Factor in some treats for yourself. This can make budgeting easier to stick with.
  • Allocate unexpected cash windfalls, such as tax refunds, work bonuses, or monetary gifts, to your emergency fund. If you weren’t expecting it, put it aside for emergencies.

9. Add in the non-essential spending

Once you’ve covered your essential needs, consider discretionary spending for non-essential items. This may include entertainment, dining out, or non-urgent purchases.

  • It is important to include non-essential spending as this can be an area where money can be spent easily without being tracked.
  • Non-essential spending, if left unchecked, can accumulate quickly and lead to overspending. Tracking these expenses helps you stay within your budget and avoid unnecessary debt.
  • Regularly monitoring non-essential spending promotes financial discipline. It encourages mindful spending and helps you distinguish between wants and needs.
  • Tracking non-essential spending allows you to identify patterns and trends in your expenditures. Understanding your spending habits helps you make informed decisions about where adjustments can be made.
  • Reducing non-essential spending frees up extra funds that can be redirected towards building or maintaining an emergency fund. This financial cushion is crucial for unexpected expenses.

10. Seek professional advice

If  you feel that you need more help and support on managing money there are a number of organisations that can help:

StepChange – Debt Charity

Citizens Advice Scotland

National Debtline

Money Matters

You can also  contact us and speak to one of our advisors who will help to advise you and answer any questions you have. They can also help you check you are receiving all the benefits you are entitled to.