FINANCIAL WELLBEING HUB
Your guide to financial
Budgeting
FINANCIAL WELLBEING
and stick to it.
We know it’s been hard for many of us to manage our money recently. The cost-of-living crisis means it can be a challenge to afford monthly expenses – never mind save for bigger purchases.
One thing that can help is making a budget. This can show you how much you’re spending, where you can spend less and how you can save more. We’ve pulled together the information below to help you create your budget.
Grabbing a takeaway coffee on the way to work. Having a meal deal for lunch every day. Making a budget shines a light on exactly what you spend your money on, and how much. You might be surprised how much those smaller, regular purchases add up to. Once you know where your money is going, you can do something about it.
Been made redundant? Expensive car repairs? Broken down boiler? Whatever life throws at you, it’s a lot easier to deal with if you have an emergency pot of money in reserve. Budgeting is the first step to making this happen.
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HOW TO APPLY
We don’t offer our products direct to customers. If you’re interested in taking out a Homeowner Loan, speak to one of our trusted broker partners. They can talk you through your options and give you their recommendation – whether that’s one of our loans, or somebody else’s. Whatever is best for you.
Before you can work out your budget, there are a few things you should do first
Collect all bank statements, bills and receipts
Gather together everything you can. Find at least three months’ worth, so you don’t miss quarterly expenses like your TV licence.
Decide who your budget is for
Is your budget just for you, or is it for your partner or family as well? If your finances can't be separated, you should sit down and do it together.
Be as accurate as possible
It’s easy to fall into the trap of underestimating how much you spend. If you're not sure, guess larger not smaller – that way you'll have money left over.
Check how you pay your pension
If your pension comes straight out of your salary, you don't need to include it in your budget. Only do this if you make a pension contribution from your bank account.
If you do the above, actually creating your budget is surprisingly simple. First, print out and use a budget planner like this one. Then follow these three steps:
How much do you earn every month? If any of your income is paid weekly, multiply it by 52 and divide by 12 to get the monthly amount. Remember to include:
- Your take-home pay (salary minus tax, national insurance and pension contributions)
- Any benefits like Jobseeker’s Allowance, Universal Credit, Income Support
- Pension income
- Housekeeping money
- Child Maintenance payments
What do you spend each month? This should include:
- Your mortgage or rent
- Household bills, including energy, broadband, council tax, water
- Insurance policies – home insurance, car insurance, life insurance
- Debt repayments, like paying back a loan or credit card
- Travel costs like public transport or petrol
- Food bills and medicines
- Money spent on socialising, clothing, toiletries, etc
- Subscriptions – streaming services, phone contract, gym
- Childcare costs like nursery fees or a childminder
- One-off costs like Christmas, birthdays, holidays – divide these by 12 to give you a monthly cost
3. Subtract your outgoings from your income
This will show if you’re spending more than you have coming in each month. If that’s the case, then you might need to choose a budget plan.
A budget plan is a way to help you get better at managing your finances. There are several budget plans you can follow – we’ve summarised the three most popular below. Have a read and decide which one will work best for you
Option A: Reverse budgeting
Option B: The envelope system
This plan works by making you allocate your money into smaller pots at the start of each month.
That way, once you run out of money for ‘clothing’, for example, you know not to spend any more on that until next month.
- If you use cash, label envelopes with categories, like rent, travel and food. Then fill each envelope with the money you want to spend on them
- If you don’t use cash, mobile banking apps like Starling and Monzo let you set aside money in different pots
- 50% on essential spending like your rent, food and bills
- 30% on personal spending like clothes, holidays or socialising
- 20% on savings to build up an emergency fund
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Making a budget is one thing. But we understand how tricky it can be to stick to spending restrictions – life has a habit of getting in the way. At Pepper Money, we’re committed to helping you succeed, and that’s why we’ve created these budgeting tips:
1. Set realistic goals
What do you want to get out of your budget? If your goals are unachievable, it’s easy to feel like giving up. Set both short-term and long-term goals to stay motivated. Short-term goals might be paying off your credit card, long-term could be saving for your pension.
2. Pay bills automatically
Direct debits and standing orders not only help you pay bills on time – they also mean you avoid late payment fees and extra interest charges. Setting up a monthly standing order to move money from your current account to your savings is a great way to build up an emergency fund.
3. Review your budget often
You might get a pay rise at work. Your priorities might change. Whatever happens, make sure you regularly look at your budget to check it’s still working for you.
4. Sleep on big purchases
We know how tempting it can be to make an impulse buy. But if it’s not something you need, take a few days to weigh up the benefits against the cost. If after a week you’ve forgotten about it, you probably didn’t actually need it.
5. Connect your spending to your work
When you’re buying something, work out how many hours of work it would cost you. You can do this by calculating how much you get paid per hour. For example, that pair of shoes you want? They aren’t just £100. They’re 5 hours’ worth of work. If something doesn’t feel worth the hours worked, don’t buy it.
6. Stick to a lower credit card limit
Credit cards with high limits are easy to build up and hard to pay off. Reduce your temptation by keeping to a lower credit limit and paying it off regularly.
7. Try a no-spend challenge
This is a commitment to not spend money on anything that’s not essential. Challenge yourself to do it for a week and see how you get on. Tapping into your competitive spirit can be a surprisingly effective way to curb your spending habits.
8. Plan your meals
Plan what you want to eat for the week, make a shopping list and only buy what you need. This way, you won’t overbuy items that you’ll end up throwing away – a waste of food and money.
9. Compare brands
Always compare named brands with a supermarket’s own brand. If it’s food, what is the nutritional information like? If they’re the same or similar, why spend more because of the label or packaging?
10. Shop second-hand
Buying used is one way to save when shopping for books, clothing, furniture, and more. You’ll be amazed at the savings you can make – and you might even get lucky and find a real bargain on luxury items.
ARTICLES & BLOGS
If you’d like to dig deeper, read our articles and blogs for the best Homeowner Loan content and insight.
Reflecting on a year of challenge and opportunity – looking forward with optimism
Loans for homeowners: how to apply and qualify
How to pay off a second charge mortgage from a property?
Can I get a secured loan with bad credit?
How to improve home security?
