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How to manage your spending habits

One of the first steps towards managing your money is understanding how you spend it.

This can help you make informed decisions about your budgetrepay any debts, and build up your 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 on your spending.

A guide to work towards is the 50-30-20 rule. It suggests you aim 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 spend your money or split your spending into categories. How you categorise is up to you, but here are some ideas:

  • Food
  • Rent or mortgage
  • Transport
  • Utility bills
  • Subscription services
  • Going out
  • Fitness
  • Childcare
  • Insurance
  • Holidays
  • Shopping

Work out your average spending

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

Review your statements from the last 3 months and add the amount you’ve spent in each category. Divide this amount by 3 to estimate how much you spend in each category, on average, per month.

Tip: Try to factor in any irregular costs that may not have occurred, 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 need to weigh up whether you can cut back on some of your wants.

If you want to reduce your spending on needs, you may find that cutting back on some things is easier than others. For example, it's easier to spend less at the supermarket than reduce your rent or mortgage or cancel your insurance policies

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