Top of main content
Woman completing some paperwork

Understanding your spending

One of the first steps in managing your money effectively is understanding the way you’re spending. This can help you make informed decisions about your budget, as well as repay any debts and build savings faster.

Categorisation is key

Broadly, your spending can be placed in either of two categories:

  • needs (non-discretionary) – rent, mortgage and other debt repayments, food, utilities etc 
  • wants (discretionary) – eating out, travel, new clothes etc

When making spending decisions it’s a good idea to keep these categories in mind. Accounting for your needs before wants can be a way to start cutting back your spending.

It can also be helpful to narrow down your spending a bit more. It’s up to you how you categorise, but these may be helpful ideas:

  • food
  • rent/mortgage
  • transport
  • bills
  • going out
  • fitness
  • childcare
  • travel
  • shopping

Total up your spending

Looking back over your statements for the last three months, total the amount you’ve spent in each of the categories. You can then divide this amount by three 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 that three months, such as TV licence renewal, or car insurance.

Consider 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?

You may find that cutting back on some things is easier than others. For example, it will likely be 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 worthwhile switching to another provider.

Get a guide of how much to spend in each area

It’s easy to get in touch online. Talk to us directly through our chat channels.