Top of main content

Understanding your spending

One of the first steps towards managing your money effectively is understanding the way you’re spending. This can help you make informed decisions about your budgetrepaying any debts and building savings faster.

Needs vs wants

Your spending can broadly fit into 2 categories:

  • needs – for example, rent, mortgage and other debt repayments, food, utilities 
  • wants – for example, eating out, travel, subscriptions, new clothes

Covering your needs before your wants can be a way to start cutting back your spending.

A useful guide to work towards is the 50-30-20 rule. This suggests aiming to spend 50% on living expenses (needs) and 30% on non-essentials (wants), such as eating out and shopping. That leaves 20% for savings or paying off debt.

It can also help to narrow down your spending a bit more. You could use our budget planner tool to see where you’re spending your money, or split your spending into categories. It’s up to you how you categorise, but these may be helpful ideas:

  • food
  • rent or mortgage
  • transport
  • utility bills
  • subscription services
  • going out
  • fitness
  • childcare
  • holidays
  • shopping

When making spending decisions, it’s a good idea to keep these categories in mind.

Work out your average spending

Look at how much you spend on average a month to help you see if you’re overspending in a specific area. 

You could start by looking back over your statements for the last 3 months and add up the amount you’ve spent in each of the categories. You can then divide this amount by 3 to give you an idea of how much you’re spending in each category on average a month.

Tip: Try to factor in any irregular costs that may not have occurred within those 3 months, such as TV licence renewal or car insurance.

Think about where to make changes

Are you comfortable with these average amounts? Are you spending too much on the weekend and having to scrimp during the week? Could you be saving more if you cut back in certain areas?

If you’re overspending, you may have to weigh up whether you can cut back on some of your wants.

If you’re looking to reduce your spending on needs, you may find that cutting back on some things are easier than others. For example, it's easier to spend less at the supermarket than reduce your rent or mortgage. 

But that doesn’t mean you can’t make plans to reduce some of your larger costs over time if you feel you need to. Look at things like your energy, phone and broadband bills to make sure you’ve got a competitive deal. If you don’t, it may be worth switching to another provider. See more about how to save money on energy.

What next?

It’s easy to answer your query online. Visit our Help page to find out how.