Working Out a Budget (2): Essential Spending

Written by Karen Bryan


Once you have worked out your current spending, you can start to decide what is essential spending and where you could make some cutbacks and/or savings. Of course essential spending means different things to different people; my aim is to live well for less, not merely exist on the lowest possible budget.

Housing Costs

Balcony lifeHousing costs swallow up quite a high proportion of a household budget, when you take into account rent or mortgage payments, council tax and water rates.  Getting a better deal on your mortgage could save you quite a bit. It’s hard to decide which is the best option, to go for a fixed rate, a capped rate or a discounted rate. However, as the savings potential here is big, it’s really worth doing a lot of research and/or consulting an independent financial advisor (not one tied to a bank who only selects from the bank’s own products versus looking at all products on the market.)

Household Expenses

Utilities covers things like electricity, gas, landline, broadband and mobile phones. Again using a price comparison site can help you make big savings. For example, in April 2011 I checked out various deals on the price comparison site Energy Linx and then signed up to a edf dual fuel (gas and electric) fixed price deal. Although the price per unit was higher than on a one year deal, I reckoned that prices would rise a lot in the coming 4 years, so made the decision to fix for four years.

I recently purchased a giffgaff sim card for my mobile phone for when my 24 month contract with Vodafone expires later this year. giffgaff offer monthly bundles and pay-as-you-go rates are low, e.g. mobile internet only costs 20p a day for up to 20mb.

If you use very little water, you could save money by getting a water meter installed.

More tips on household budgeting.


Food prices have been increasing in recent years.  Going to several different supermarkets to snap up their current offers can produce savings but is also time consuming. Some people say you can save on food by buying your groceries online, as you’re not tempted to buy anything not on your list.  If online grocery shopping suits you, the MySupermarket online price comparison site can save you money. We prefer to go to the supermarket, to select the fruit and veg ourselves, look for the expiry dates as far as possible in the future and have a rake around reduced items.


How much you need to spend on clothes partly depends on your job. As I work from home, you’ll usually find me in trackie bottoms, a t-shirt and fleece, so I don’t need to spend much on clothes.  Even if you need to dress smartly for work and/or like dressing up for going out, you can still find some great bargains in sales and stores like TK Max. I bought some nice items in George at Asda and in Tesco. You could also try swishing i.e. clothes swapping.


Most people will have some sort of transport costs, whether they be bus or train fares and/or running a car. If you live within a couple of miles from work, you could consider walking or cycling there, which would keep you fit and save money.  Could you car share with a work colleague or give up your own car if there’s a city car club where you live? There’s no doubt that running a car can be expensive, but you can still make savings by using a price comparison site such as to find the cheapest car insurance and looking out for money off fuel offers at supermarkets.


I believe that some leisure spending is essential for quality of life. However, this is a part of your budget that can easily spiral out of control, if you have several holidays a year, buy gifts for many family members and friends, go to pubs and cafes often and/or have expensive hobbies. There are ways to have a good time without spending too much.  I’ve written some tips on saving on travel. We usually find it’s cheaper to eat out at lunch time than in the evening. You may have to choose between a couple of short breaks or a one week holiday if money is tight.


I believe that everyone should try to save some of their income. Ideally you should have an emergency fund of at least three months living expenses. Putting your savings into a Cash ISA, the current limit per person on which is £5340 pa, means that you pay no tax on the interest.  If you can afford it, saving into a pension from as early an age as possible, could give you a welcome supplement to the state pension in your retirement.  The National Employment Savings Trust (NEST) which is being phased in from 2012 is worth looking into.

Loan Repayments

It’s likely that you are paying a higher rate of interest on many of the loans that you have than you are receiving in interest on your savings account. Therefore it’s a good idea to see if either, finding a lower rate of interest e.g. transferring a credit card balance to a 0% offer (such as the 22 month deal on the Halifax Balance Transfer Card) or paying off the loan/balance in full, means that you benefit more than having the money sitting in a savings accounts.


You really need to be honest and realistic with yourself when setting your budget. Now that you have analysed your current spending and looked at ways of making savings, you need to set your new household budget and stick to it.

I work out an annual budget and then divide it by 12. I leave the money I need for monthly expenses (except savings) into my current account. Some months there may be a surplus. There can be big monthly variations in spending, so I just leave that surplus in the current account, as I know that spending will be higher some other months.

My Other Articles on Budgeting

Working Out a Budget (1): Current Spending

Working Out a Budget (3): How Much Should I Save?