This guide gives advice about day-to-day budgeting for your business and your household. You can use this guide to find ways of planning and managing your spending. 

Use this guide to:

• find out why completing a budget is important; 
• make sure you complete the budget that is right for you;  
• help you to manage your business and living costs; and 
• understand how saving can help you to manage your finances. 

When should I use this guide?

You can use this guide at any time. It has helpful advice if you need to work out a budget for the first time or update information in your existing budget.

Budgeting

This guide explains why you need to create a budget and which type of budget you should complete. It gives practical advice about how to fill in your budget, and about day-to-day budgeting for your business and home.

You can also use this guide to find ways of managing and planning your spending. This will help you to have more control over your business and living costs.

Planning and saving

Saving money every month is an important part of dealing with your debts. This guide explains how saving can help you to keep on track with your budget, plan for future costs and deal with unexpected emergencies. It also explains that there are different ways of saving. Use this guide to consider how much you need to save each month, and how to keep your money safe.

Why is budgeting important?

Budgeting is important because it helps you:

• see what money you have coming in (your income);
• see what money you have going out (your outgoings);
• pay your essential bills on time;
• work out what money may be available to pay towards any debts you may have; and
• plan your future spending.

Which budget is right for me?

To get started, you first need to know which type of budget (or budgets) to complete. It is important to complete the right budget for your situation, which takes into account how you are set up in business (your trading status). This will help you to create an accurate overview of your financial situation so you can plan what to do next.

If you have already spoken to one of our advisers or signed into My Budget we will use the information you have given us about your trading status to create the right budget for you to complete. If you have more than one trading status, we will take this into account too.

If you haven’t contacted us yet, take a look at the My Budget section of our website. Our online tool will ask you about your situation so it can create the right budget for you. If you set up a My Budget account, you can complete your budget in your own time and go back to it as many times as you want to.

Director of a limited company

If you are the director of a limited company, we will not ask you to complete our business budget. This is because the limited company is a separate legal entity to you and its finances should be separate from yours. Instead, you will need to work out how much the limited company can afford to pay you on average each month.

Working out what the limited company can really afford to pay you is an essential step in assessing your overall financial situation. You may need to contact your accountant to help you work this out.

• Consider how the limited company’s income and outgoings change from month to month, and how this affects what you can reasonably take as income from the company.  
• If the amount of income you can take from the company fluctuates, work out an average monthly figure. This is usually based on the last three months of your income.  
• However, if the limited company’s trade is seasonal, you may need to use a longer period to work out your average income from the company, for example, over the last 6, 9 or 12 months. If you are unsure if this applies to you, contact us for advice.  

Once you know how much income you can take from the company, you will need to deduct an amount for any tax you will have to pay on this income (including any dividend income).

As a director of a limited company, we will ask you to complete our household (personal) budget. This will ask you to list the income coming into your home. Include the average amount you can reasonably take from the company each month (after allowing for tax) in the income section of your household budget.

Our household budget will also ask you to list your essential living costs. It will help you to see whether you have enough money coming into your home to cover your living costs, and how much is available to pay towards your debts.

For more information about completing the household budget, see Working out your household budget later in this guide.

Sole trader or partner in a business partnership

If you are a sole trader or a partner in a business partnership, you will need to complete our business budget and our household (personal) budget. You need to do this even if you have personal debts only.

Don’t be tempted to skip the business part of the budget. It’s an essential step in working out how your business is doing overall, and how much on average you can really afford to take (draw) as an income from your business each month. It also gives you the opportunity to consider whether you can reduce any of your business costs.

• Our business budget will ask you how much is coming into your business (income) on average each month, and how much you need to cover its running costs (outgoings). It will use this information to work out if your business is making a profit on average each month.
• It will also work out roughly how much income tax and National Insurance (NI) you may have to pay on the profit your business produces (or your share of the profit if you are in a business partnership). We advise that you put this amount to one side each month so you can pay your personal tax bill on time.
• Our business budget will then work out how much is left (after allowing for tax and NI) for you to take on average each month from your business. This is your available drawings.

Your available drawings will show as your income from business in your household (personal) budget. Our household budget will also ask you to list any other income coming into your home, as well as your essential living costs. It will help you to see whether you have enough money coming into your home to cover your living costs, and how much is available to pay towards your debts.

For more information about completing your business budget, including how to work out your average figures, see Tips for completing your business budget later in this guide.

For more information about completing your household budget, see Working out your household budget later in this guide.

Landlord

If you personally receive an income from property you let as a person’s home, you will need to complete our buy-to-let budget and our household (personal) budget. You need to do this even if you are up to date with your buy-to-let mortgage and running costs.

Don’t be tempted to skip the buy-to-let budget. It’s an essential step in working out how your property is performing overall, and how much on average you can really afford to take as an income from your property each month. It also gives you the opportunity to consider whether you can reduce any of your property costs.

• Our buy-to-let budget will ask you how much rental income your property brings in on average each month, and how much you need to cover its running costs (outgoings). It will use this information to work out if your property is making a profit on average each month.
• It will also work out roughly how much tax you may have to pay on the profit your property produces. We advise that you put the estimated tax amount to one side each month so you can pay your personal tax bill on time.
• Our buy-to-let budget will then show you how much is left (after allowing for tax) for you to take on average each month as your income from the property.

Your income from the property (after tax) will show as your income from business in your household (personal) budget. Our household budget will also ask you to list any other income coming into your home, as well as your essential living costs. It will help you to see whether you have enough money coming into your home to cover your living costs, and how much is available to pay towards your debts.

For more information about completing your buy-to-let budget, see Tips for completing your buy-to-let budget later in this guide.

For more information about completing your household budget, see Working out your household budget later in this guide.

Tips for completing your business budget

This section is for sole traders and partners in a business partnership.

Working out your business income

• The business budget will ask you how much income you take into the business each month. This should be the gross amount the business receives (before any costs are deducted).
• As business income can often fluctuate from month to month, we usually advise you to work out an average monthly income figure for your business budget, based on your last three months’ trading figures.
• You can use your business accounts, books and bank statements to work out how much money you have taken into the business over the last three months. Divide the total by three to work out the average monthly income figure or use My Budget to do it for you.
• Do not include money for work you have done or things you have sold but have not yet been paid for. Only include money you have actually received.

Is your business seasonal?

If your business is seasonal, you may need to use a longer period to work out an average monthly income figure for your business budget, for example, based on your last 6, 9 or 12-months’trading figures. If you are unsure if this applies to you, contact us for advice.

Working out your business outgoings

• The business budget will also ask you to list the monthly running costs (outgoings) for your business.
• Calculate your average business outgoings over the same period you use to calculate your average business income.
• If you have any occasional costs, such as for a business insurance policy that you pay yearly, remember to include an amount in your outgoings each month to cover these costs too. My Budget will work out the monthly equivalent for you.
• Many of the figures we ask you to include in your business budget will be based on your regular bills or direct debits and standing orders from your bank account. Use your bank statements to work out how much you need to include for each of your business costs.
• Be realistic and accurate. Make sure you include all your business outgoings. Do not be tempted to include figures that are less than you are really spending, or to leave some costs out of the budget. If the figures in your business budget are too low, you will find it hard to keep to your budget.
• Some of your costs may cover services or items that you use for both your business and personally, such as a mobile phone contract or car agreement. If this is the case, only include the costs that relate to your business use in your business outgoings. The remainder of the costs will need to be added to your household outgoings. For more information about separating business and personal costs, see the GOV.UK page Expenses if you’re self-employed.

Check for better deals

Listing your business outgoings provides an ideal time for you to check if there are ways to save money on any of these costs. This could help to make your business more profitable. For more information, see Reducing your business outgoings later in this guide.

For tips on increasing business income, go to our website www.businessdebtline.org and take a look at Step 1 – Increasing your income.

Tips for completing your buy-to-let budget

This section is for landlords who receive a personal income or are entitled to do so from a buy-to-let property they own, or part own.  

Working out your rental income

• The buy-to-let budget will ask you how much rental income your property brings in each month. This should be the gross amount of rental income received (before any costs for the property are deducted).
• As income from property is not always guaranteed, we usually advise you to work out an average monthly income figure for your buy-to-let budget based on your last three months’ figures.
• You can use your business accounts, books and bank statements to work out how much rental income you have taken over the last three months. Divide the total by three to work out the average monthly income figure or use My Budget to do it for you.

Is your property usually empty for some time during the year?

If your buy-to-let property is usually empty for some time during the year, for example between the end of a tenancy or occupation contract and the start of a new one, you may need to use a longer period to work out an average monthly income figure for your buy-to-let budget. Think about the usual pattern of occupancy and income for your property. Consider whether you need to look at your last 6, 9 or 12-months’ rental figures to work out an average that takes into account how your rental income usually fluctuates. If you are unsure if this applies to you, contact us for advice.

Working out your rental outgoings

• The buy-to-let budget will also ask you to list your monthly running costs for your property (outgoings).
• Calculate your average property outgoings over the same period you use to calculate your average rental income.
• If you have any occasional costs, such as for a property insurance policy that you pay yearly, remember to include an amount in your outgoings each month to cover these costs too. My Budget will work out the monthly equivalent for you.
• Many of the figures we ask you to include in your buy-to-let budget will be based on your regular bills or direct debits and standing orders from your bank account. Use your bank statements to work out how much you need to include for each of your property costs.
• If you have mortgage costs, the budget will ask you to separate out your buy-to-let mortgage interest costs and your buy-to-let mortgage capital costs. Take time to include any property mortgage costs you have in the correct sections of the buy-to-let budget. This is important because we use this information when we work out your estimated tax liability:
  • to decide which of your outgoings are usually treated as tax deductible; and
  • to include an estimated basic rate tax reduction for your buy-to-let mortgage interest costs in our calculation.
• If you are unsure how your mortgage costs are split, check your mortgage statements or contact your lender.
• Be realistic and accurate. Make sure you include all your buy-to-let outgoings. Do not be tempted to include figures that are less than you are really spending, or to leave some costs out of the budget. If the figures in your buy-to-let budget are too low, you will find it hard to keep to your budget.

Managing your money and budgeting for your business

This section gives some useful hints and tips to help you to help you plan ahead and manage your business finances.

Planning ahead

Business income and outgoings can vary from month to month. They depend on a number of things, including the time of year and competition from other businesses. Unexpected events, such as the loss of a major customer, can also affect your business. These things can make it difficult to pay bills on time or repay debts.

The money that comes into your business is called cash flow. Filling in a cash flow forecaster will help you to estimate your future income and outgoings and see when you are likely to experience financial difficulties. Understanding your cash flow will help you to manage your business and plan ahead.

It is important to try to set aside some money when your business income is higher, to cover bills and debts when your business income will be lower. Consider opening a second business bank account to keep this money separate from everything else. Setting up a business overdraft can also help you cope with fluctuations in business income over the year.

Take a look at the cash flow forecaster template on the Start Up Loans Company website. The Start Up Loans Company provides government-funded loans and business mentors. It is designed to help support people with viable business ideas who don’t have access to finance

Business bank accounts

It is important to set up a business bank account when you are self-employed. This will help you to keep your business income and outgoings separate from your household income and outgoings. Set up an account with a bank that you don’t have any existing debt with. This will strengthen your position if you have difficulty paying your existing bank debts in the future.

Keeping your business and personal finances separate will also help you to keep the records you need to complete your tax returns.

A second business account can help you set aside money each month for your income tax, National Insurance and VAT bills. You could also put money into this account based on the results the cash flow forecaster gives you to plan for times when your business income may reduce.

If you have difficulty setting up a business bank account, contact us for advice.

Reducing your business outgoings

Take a look at all your business costs to see if you can reduce any of them. This could help to increase the amount the business can afford to pay you.

Business rent

You could try to negotiate better terms with your landlord for your business rent, especially if the property is likely to be difficult to rent out to someone else. If your landlord will not agree to reduce the rent, consider whether you could end the lease or pass the lease on to someone else so you could look for cheaper premises. For more information, see our Commercial property leases guide.

It may be that you don’t need business premises to trade. Consider whether you could trade from home to save money on business rent, business rates and utility bills. For more information, see the GOV.UK page Running a business from home.

Business rates

Check whether you qualify for a reduction on your business rates bill. There are several schemes available, and each scheme will have its own rules for deciding which businesses are eligible. Contact your local council to find out what you are entitled to. For more information, see our Business rates guide.

Business gas, electricity and phone bills

You may be able to shop around for better deals. First, check to see if you are tied into a contract as there could be penalties if you try to leave a contract early. If you are not tied in, compare the prices of several suppliers. There are independent price-comparison websites that can help you find the best deal. For, example, you can use the website www.uswitch.com to help you find the best energy deal for your business. Always check the terms and conditions to see what would work best for your business. 

It’s also worth checking whether you can reduce the amount of energy you use in your business. For more information, see our Reducing commercial energy costs guide. 

Other costs

You can also ask other suppliers, such as those that supply you with goods, whether better prices are available. Or you could consider using cheaper suppliers. Ask for recommendations if you are considering changing your supplier.

If you use an accountant, check to see if you are paying too much for their services. Ask other businesses in the area for recommendations and compare prices to see what would work best for your business.

If you pay for advertising, consider the added business this brings in. If your current way of advertising is not bringing in a lot of business, consider changing the way, and how often, you advertise. Always check the terms and conditions before you leave or enter into a new contract.

Check if your business is paying out for subscriptions or services that it no longer uses. If it is and you no longer need the subscription or service, check the terms and conditions to see if you can end the agreement. If you are tied in for a set period, add a note to your diary to remind you to cancel the agreement when you can.

Working out your household budget

Working out your household income

Include all the income for you and your household. This includes any of the following income you may get.

• Your income from your business. If you complete a business budget or a buy-to-let budget using My Budget or with one of our advisers, this figure will automatically be included in your household budget. If you are a director of a limited company, you will need to work out the amount of income from your business. For more information, see Director of a limited company in the earlier section Which budget is right for me?.
• Wages or salary for you or your spouse or partner (not your business partner). This is the usual amount of take-home pay. Only include overtime if it is regular.
• Benefits, including Child Benefit, that you or your spouse or partner are receiving.
• Any pensions that you or your spouse or partner may be getting. This includes the State Pension.
• Contributions from other people who live in your home, such as grown-up children and elderly relatives (known as non-dependants). Make sure that any non-dependant is paying enough towards the household expenses (and don’t forget to include any extra housekeeping costs for them in your outgoings).

Check if you can increase your income 

Listing your household income provides an ideal time for you to check if there are ways to increase the amount that is coming into your home. This could help to make your bills and debts easier to manage. For example, you can use the Turn2us benefits calculator to check whether you are entitled to any benefits you are not claiming, and take a look at the GOV.UK Tax codes information to help you check you have been given the correct tax code.

Working out your household outgoings

The easiest way to work out a household budget is to use monthly figures. If you pay for some outgoings at other intervals, such as weekly, fortnightly or four-weekly, and use My Budget or complete your budget with one of our advisers, our budget will work out the monthly equivalents for you.

Working out your outgoings will help you to see how much money you need to spend on your basic living expenses. At this stage, do not include any debts, arrears or credit payments. 

Your household outgoings should include the following areas. 

• Essential spending. This includes household bills and regular payments, such as for your mortgage or rent, council tax, utility bills, and so on.
• Communication and leisure costs. This includes costs for your home phone, mobile phone, internet, TV package, hobbies, gifts and so on.
• Travel and transport costs. This includes public transport costs and costs for running a vehicle.
• Food and housekeeping costs. This includes money for food, cleaning materials, nappies, house repairs and so on. Also include your costs for alcohol and smoking products.
• Personal costs. This includes costs for clothing, footwear, toiletries, hairdressing and so on.
• Other spending for outgoings that are not covered anywhere else in your household budget.

Are my household outgoings reasonable?

Many of your household outgoings will be based on your regular bills or direct debits and standing orders from your bank account. You might not have much control over some of these amounts. It is important that the amounts you put in your household budget are based on your true spending so the budget is accurate.

• Be careful and be realistic. Do not include figures that are less than you are really spending. If your figures are too low, you will find it hard to keep to your budget.
• Be sensible about your spending. If you have debts and your creditors don’t think that your household outgoings are reasonable, they are less likely to agree to reduced payment offers.

If you are not sure about your spending, contact us for advice.

Money left over after bills and essential spending

If you have worked out your budget, and have money left over after you have paid your essential living costs (an available surplus), it can be used to do the following.

If you have debts

There is a section in your budget for you to list the debts you have. List all the debts you owe in your sole name, and jointly with another person. If you are unsure how to find this information, contact us for advice.

If you have enough money left over to pay the normal monthly payments on your debts, you should continue to make these payments in full if you can.

If you haven’t got enough money left over to pay the normal monthly payments on your debts, you need to decide which debt solution is best for you. Our Ways to clear your debt guide provides an overview of the solutions that may be available to you. Contact us for advice so we can explore your options with you.

Informally negotiated arrangement 

If you want to negotiate with your creditors yourself, it is important to get arrangements in place for your priority debts first. Priority creditors have the most power. If you do not pay them what you owe, you may lose an essential service or an essential item. For example, if you do not pay your gas or electricity, your supply could be cut off.

Once you have arrangements in place with your priority creditors, you can use your budget to work out offers for your non-priority debts, such as credit cards, unsecured loans and overdrafts. Non-priority creditors have less power to make you pay what you owe them. You still need to pay them, but after your priority debts. We suggest that you treat your non-priority creditors fairly. My Budget will work out fair pro-rata offers for your non-priority creditors.

If you want to save

It is a good idea to save some money each month if you can. This helps you plan ahead. It can be hard to keep up to date with essential bills or repay any debts you might have when an important expense needs paying. This could be if your car needs fixing, or you have an urgent house repair. You can spread out these payments and make budgeting much less stressful if you regularly put a bit of money aside to pay for expenses such as these. It also helps you to budget if you save something regularly towards costs for Christmas, birthdays and holidays. For more information, see Saving later in this guide.

Pensions

It is important to try to pay towards a pension to save for your retirement. You need to think about how much to save, and about the different options that are available. If you are 55 or over you may be able to use your pension fund now, but this could reduce your income in the long term. For more advice contact MoneyHelper on 0800 011 3797 or see www.moneyhelper.org.uk.

If you are considering using your pension funds to pay towards your debts, take a look at our Pension freedoms and debts guide.

Taking out more credit

Lots of people take out credit for all sorts of items such as buying new business equipment, a new car or a new sofa. Your budget will help you work out how much you might be able to pay on a monthly basis. Think carefully about whether you can afford to take out more credit and shop around for the best deals.

If you already have debts that you are finding it hard to pay, taking out more credit might mean you struggle to pay your ongoing bills and any other debts you might have. Think carefully before you do this. Your budget will tell you if you have enough money left over to pay the monthly payments.

If you are considering taking out more credit to pay off your existing debts, take a look at our Debt consolidation: what to think about before you borrow guide before you make a decision.

Managing your money at home

This section gives you tips to help you manage your household costs more easily.

TV licence

Paying for your TV licence is a priority. This is because you can be fined in the magistrates’ court for not having a licence. If you don’t pay the fine, this can lead to bailiffs calling, or you being sent to prison (although this is rare). As well as having the fine to deal with, you will still need a TV licence.

Check whether you have to pay for a licence in full. 

• You can get 50% off your TV licence if you are registered blind or severely sight impaired..
• The licence may be free if you are age 75 or over and you, or your partner, gets Pension Credit.
• A concession may be available to people living in certain types of residential care accommodation, such as sheltered housing.

There are different ways of paying for a TV licence. Work out which one suits you best.

• You can pay your licence weekly, fortnightly, monthly or every three months. 
• You can use the TV Licensing savings card or make payments at PayPoint outlets in shops. To apply for a TV Licensing savings card, contact 0300 555 0281.
• You can pay by direct debit either every three months or every month from your bank account. See www.tvlicensing.co.uk.
• There is a payment scheme called the ‘cash payment plan’ which allows you to make payments towards your licence every week or two weeks. You can only use the scheme for colour licences. Contact the cash payment plan helpline on 0300 555 0286 or check the TV Licensing website.

Household gas and electricity bills

It is very important to budget for gas and electricity bills. Energy suppliers offer different ways to pay, depending on how your account is set up. 

If you pay by direct debit, you may be able to pay every week, every two weeks, or every month.

If you pay when you get a bill, or you use a prepayment meter, it’s important to keep an eye on how much energy you use and how much your energy costs. It is a good idea to save regularly during the year, especially in warmer months when your energy use is lower, so you’re prepared for higher costs in winter.

Help with high bills

If your heating bills are very high, call the Home Retrofit Advice and Information Line on 0800 098 7950 or see Find ways to save energy in your home on GOV.UK for information on how to reduce your bills and make your home more energy efficient. Also take a look at the  Energy Saving Trust website for information about saving energy.

If you live in Wales, you can also apply for free home improvements through the Nest scheme. Contact Nest on 0808 808 2244 or check what energy grants and help you can get on their website.

Getting the best energy deal

You might be able to save some money by switching to another supplier. This may work out cheaper, particularly if you have both gas and electricity from the same supplier. If you owe money, you may not be accepted by a new supplier but you should be allowed to switch if you have a prepayment meter and owe less than £500. There are a number of independent internet price-comparison sites that can help you find the best deal. See the list of authorised companies on the Ofgem website www.ofgem.gov.uk.

Help from gas and electricity companies

Some energy companies have set up trust funds that may be able to help you pay your energy bills if you are in financial difficulties. Ask your energy company if they run a scheme. If your supplier does not have a trust fund, you can apply to the British Gas Energy Trust for help, even if you are not a consumer of British Gas.

If you are struggling to top up your prepayment meter, ask your supplier about emergency credit or fuel vouchers.

Best deals for your phone calls

Check your phone contract is the best you can find. You may be able to make savings if you switch phone companies.

Even if you don’t want to change your phone company, there are other ways to cut down on your phone bills.

• Pay by direct debit.
• Use the internet. If you have access to the internet, you may be able to talk for free using software such as Skype, Viber or WhatsApp.
• Check your contract. Are there extras such as voicemail that you don’t really need? If you have an expensive ‘unlimited anytime’ package, do you really need it?
• See if your phone company has a social tariff. This may be helpful if you are on certain benefits and only use your phone occasionally.
• See if you can switch to paperless billing. If you agree to get your bills online, you could save some money.
• If you use directory enquiries, re-dial on the number they have found for you, instead of asking them to transfer your call.

If you have a bill that you cannot afford to pay and you want to keep the phone line, ask your phone company if you can pay by instalments. Your phone company may be more likely to agree if you set up a monthly payment plan, perhaps by direct debit. They may also agree to let you have only incoming calls for a short time to help reduce your bills. When you have cleared your arrears, you may then be able to go back to your normal phone package.

Best deals for your broadband

There are lots of companies offering broadband so shop around for the best deal. You will usually also have to pay for line rental, and many companies offer digital television packages too. Check to see if you can get a better deal paying for these separately where possible. Make sure any usage cap is suitable for you, to avoid further charges.  If your current contract is finishing, don’t be afraid to ask for a better deal.

Ofcom recommend a number of price comparison websites, see www.ofcom.org.uk.

If you receive certain benefits, you may be eligible for a social tariff. A social tariff will usually be cheaper than the provider’s other tariffs. Most social tariffs are for broadband. However, there are some for landline phones. Ofcom has a list of available social tariffs and the eligibility criteria.

Travel costs

If you use public transport, you may be able to save money by buying a weekly, monthly or annual travel pass. Some employers have schemes to make it easier to pay.

Cycling is free but bicycles can be expensive. Again some employers may use a scheme to help reduce and spread the cost.

Running a car can be very expensive. Make sure your budget allows for costs such as road tax and MOTs. It is important to save regularly so you have money to pay for any repairs that are needed. Only use your car when necessary.

Saving

Future outgoings 

While many outgoings are paid monthly, some are not. You might have outgoings that need to be paid yearly, half-yearly or every three months. These could be for costs such as replacement school uniform, a car service or gifts that you buy.

When you fill in your budget, you need to work out how much extra to add to your outgoings each month so that you can pay these occasional costs when you need to. By putting the ‘extra’ money to one side each month you can build up a pot of money to use throughout the year. This savings pot will help you to keep on track with your spending from month to month.

If you don’t save this extra money, you will probably find it difficult to pay all your monthly outgoings and your occasional outgoings as they become due. This could cause you to fall behind with essential living costs, such as your electricity payment, or be unable to buy items that you need to, such as a replacement school uniform.

Christmas saving tip 

We often find that Christmas can cause problems for people who don’t have enough income to pay their outgoings and buy gifts. It can make this time of year very stressful. However, by budgeting and regularly saving throughout the year, you can build up a ‘Christmas fund’. This can help to reduce the financial stress of gift buying.

Unexpected emergencies

 It is also important to save an amount in your budget for emergencies if you can. This is because most people are faced with an unexpected cost at some point. For example, if your vacuum suddenly stops working, you will need to pay to have it repaired or to replace it.

If you do not have any emergency savings, you may be tempted to use money that is needed for your essential outgoings, or have to do without an item that you need.

My Budget includes a separate ‘Savings’ category. If you have money left over after you have paid your essential living costs, you can add an amount for savings. This will help you to build up an ‘emergency savings’ pot to use when an unexpected cost comes your way.

Most creditors will think it’s reasonable if you save a monthly amount of up to £25 of the money you have left over after paying for your essential living costs each month. This limit applies to your whole household, not individual members of it. So, for example:

• if you live alone and have £50 a month left over, you can save up to £25 a month; and 
• if you live with a partner and have £50 a month left over, you can save up to £25 a month. 

Keep your savings safe 

Deciding how much you need to save towards your occasional outgoings and emergencies is just the first step. You also need to make sure that your savings are available for you to use when you need them.

Protect your savings from:

• becoming mixed up with your normal spending; and 
• being used by your bank to pay towards a debt that you owe them. 

Keep your savings in a separate account 

If you keep your savings in the same account you use for your day-to-day income and outgoings, you may find that you lose track of how much money is for your savings and how much money is for your normal monthly spending. This can lead to you spending your savings without being aware of it.

To protect against this, open a separate account that is just for your savings. You can open more than one savings account if you want to. Some people find that having a separate account for each different type of savings helps them to budget.

Have a safe savings account 

Make sure that any savings you have go into an account with a bank or building society that you do not owe any money to. This is because if you owe money to a bank or building society, they can usually take money from an account you have with them to pay towards the debt you owe them. This is called the ‘right of set-off’.

If your savings account is with a bank or building society that you owe money to, open a new safe savings account with a bank or building society that you do not owe any money to.

What to think about when opening or closing a savings account 

ome types of savings accounts have rules about: 

• when you can take your money out (for example, you may be allowed to take it out straightaway or only after a set amount of time); 
• how often you can take money out of the account; and 
• how the interest that you have earned on your savings is affected if you take out your money earlier, or more often than the rules allow. 

If you are closing an existing savings account, check your agreement for any special rules. Look out for any penalties that may be applied if you withdraw your savings. 

If you are opening a new savings account, shop around for an account that suits you best. MoneyHelper can give you more information about the different ways of saving. Go to www.moneyhelper.org.uk and search for ‘Types of savings’, or call  0800 138 7777.  

You may also want to take a look at their information about credit unions. Go to www.moneyhelper.org.uk and search for ‘Credit union savings accounts’. If you join a credit union and start saving with them, you will usually be able to apply to borrow money once you have proved you are a reliable saver.  

If you are claiming Universal Credit and get earned income, also have a look at the Help to Save  section later in this guide. 

Financial Services Compensation Scheme (FSCS) 

Whoever you decide to save with, make sure that they are covered by the Financial Services Compensation Scheme (FSCS). This scheme is set up to protect you if your bank, building society or credit union runs into financial difficulty. For more information, go to www.fscs.org.uk or call  0800 678 1100. 

Consider setting up a standing order

Make saving easier. Consider setting up a standing order with your bank, so that your money can be transferred automatically every month from your current account to your savings account. 

If you set up a regular standing order, you won’t need to remember to transfer or pay money into your savings account each month. 

Help to Save

The government has introduced a savings scheme called ‘Help to Save’. This can give you a 50p bonus for every £1  you save over a four-year period.

You can apply to join the Help to Save scheme if you:  

• are claiming Universal Credit and had earned income of at least £1 during the last assessment period;
• are a UK resident; and
• have a bank account.

If you live outside of the UK, you can also apply if you or your spouse or civil partner is a member of the Crown services or British armed forces.   

MoneyHelper has more information on how the Help to Save scheme works. Go to www.moneyhelper.org.uk and search for ‘Help to Save explained’ or call 0800 138 7777.

Other guides that may help you

Business rates guide 

Commercial property leases guide 

Debt consolidation: what to think about before you borrow guide 

Hire purchase debt guide 

Payday loans guide 

Pension freedoms and debts guide 

Tax allowances and amounts guide