Knowing what you can afford

If you’re planning to borrow money, will your monthly budget stretch to cover repayments?

Creating a budget

Start by making a list of everything you earn, and what you spend, giving you a picture of where your money is going, and where you could make savings. Could your money work harder?

It could help you to plan your spending and keep closer track of what’s coming in and going out:

  • A budget can help everyone, not just those trying to tackle outstanding debts.
  • The aim isn't to restrict your freedom, but to help you make better spending choices.
  • Making the most of your current earnings could be easier than you’d expect.


List where your money comes from

For many people, wages from an employer is their main source of income, but you might also receive money from:

  • Self-employment.
  • Benefits, including tax credits, or disability allowances.
  • Investments, like ISAs, share dealing, property or premium bonds.
  • State or private pensions.
  • Gifts or inheritance.

If you share financial commitments, such as a mortgage, joint accounts or utility bills, it’s worth reviewing your entire household income, even if you usually keep your personal finances separate.

Money can be a stressful topic for many couples, but knowing where you stand could help you to tackle financial problems, and take a step towards your shared or personal financial goals.

It’s also important to make sure you can afford to cover financial commitments you’re solely responsible for.


And what you spend

List out your essential monthly expenses, which could include:

  • Housing costs, like rent, mortgage payments, service charges, site fees or ground rent.
  • Household bills, including council tax, a television licence and subscriptions, phone and internet connections, or utilities like water, gas and electricity.
  • Insurance policies you pay monthly, such as building and contents cover, car, private healthcare, dental or pet insurance.
  • Living expenses, including food, pet products, cleaning products and essential clothing.
  • Travel costs, like car, fuel or public transport expenses.
  • Healthcare items, such as toiletries and prescriptions.
  • Leisure and entertainment, including gym membership.
  • Repayments on existing debts, including store credit, car finance, loans or credit cards.
  • Childcare costs, such as nursery or school fees, uniforms, trips, meals and clubs.
  • Other care costs, such as home help services, respite care, nursing and care homes.
  • Child or spousal maintenance payments.
  • Charity donations.

Then think about things you pay for less often – perhaps once or twice each year:

  • Vehicle expenses, including road tax, insurance renewals, tyres, servicing and your annual MOT.
  • Seasonal essentials, like summer clothing, or winter coats and footwear.
  • Insurance policies you pay annually, such as medical, pet, car or home insurance.
  • Annual passes, including train, local attraction or cinema tickets.
  • Celebrations and gifts.

Finally, there are the things you might want to save up for:

  • Holidays, including travel insurance, transport, accommodation, food and entertainment.
  • Unexpected costs, like emergency car repairs, or essential home improvements.
  • Non-essentials, like treats, meals out and luxury goods.
  • Life events, like a wedding or significant birthday.
  • Family needs, like university fees and housing.

Compare your income with your outgoings. Are you living beneath, within or above your means?

Manage your bills

Living within your means

There are many benefits to following a budget and living within your means:

  • You’re less likely to end up with excessive and persistent debt, or future financial difficulties.
  • You could put more money aside, making it easier to manage unexpected challenges.
  • You could repay debts faster, potentially saving on borrowing costs.
  • Nurture a habit of saving or investing for your future needs.
  • Have money saved to take advantage of limited time offers.
  • Avoid ‘impulsive’ purchases by focussing on ‘needs’ first.
  • Have fewer stresses and arguments about money.
  • Feel more in control.

Do you have existing debts?

If you have existing debts on credit cards, personal loans, overdrafts, car finance and store cards, you’ll have several monthly payments to manage. Your balances are also likely to be charged at different interest rates, making it difficult for you keep tabs on your borrowing costs.

You could benefit from reviewing your existing borrowing, even including your mortgage, to see if you could make savings.

Combining existing debts could also make your finances easier to manage each month. There are a number of ways you could do that.

How to consolidate debt

Have you got savings?

Saving could give you a safety net should the unexpected happen. It’s also often cheaper to save for the things you want, rather than using credit, as you’ll avoid interest, fees and additional charges.

You could also put your money to work by investing, aiming to increase your balance in future. It’s just useful to remember that the value of investments and any income from them can fall as well as rise, and you might get back less than you invest.

By adjusting your current spending, you might be able to save more money each month:

  • Try to repay debts faster, potentially cutting your borrowing costs.
  • Compare prices when your insurance renewals are due.
  • Shop around to save money on everyday essentials.
  • Switch to a cheaper phone and internet tariff.
  • Change to a cheaper television subscription.
  • Switch to a cheaper utilities provider if you can, and keep track of your energy consumption.
  • Cut your non-essential costs.

Even small purchases add up, so it could help to keep a note of everything you spend. You could set yourself a monthly budget after all of your essential living costs are covered, and you’ve set aside a regular savings amount. You’re more likely to pay attention to costs if you have cash in your pocket, rather than paying by card, so that could be a handy way to keep track of your spending.

Other saving tips and tools

Save the Change®

If you have a Halifax debit card, you could register for Save the Change®. When you spend, we’ll automatically round up the amount to the nearest pound, transferring the difference to an eligible Halifax savings account, helping you to save without thinking about it.

More on Save the Change®

Check your budget regularly

It’s up to you how often you review your budget, but it’s sensible to take a look any time:

  • Your income goes up or down.
  • Your regular costs increase or decrease.
  • You’re planning a large purchase or expense.
  • You’ve paid off some debts. Will you have more to save?

Before you apply for credit

Consider whether you’ll be able to manage the repayments over time, including any borrowing costs, like interest, fees and charges.

Would you be able to manage if the unexpected happened, or your circumstances changed, like increased interest rates, reduced hours at work, a period of sickness or being made redundant.

Try our budget calculator

Ready to apply?

Lenders and other service providers will usually complete a credit check as part of their decision-making process. In addition to information from your credit record, they might also consider:

Details you provide

As part of a credit application you’ll be asked for some personal and financial information, which could include your address, employment status, income and regular expenses.

What you can afford

Lenders will review what you can reasonably afford to repay, based on your income, outgoings and anything you’ve already borrowed.

Your account history

Lenders usually keep records about accounts you’ve held with them in the past, including whether or not they were managed well.

Tips for managing credit

  • Only borrow what you need and can reasonably afford to repay. Try to find introductory or promotional interest rates if they’re available to you.
  • Make sure you understand any borrowing costs, including interest, fees and other charges.
  • Check your statements and online accounts regularly, keeping an eye on your balances, transactions and any payments due.
  • Make payments on time to avoid extra fees and charges, losing any introductory or promotional interest rates, and to limit any negative impact on your credit score.
  • Repay as much as you can, wherever possible, to reduce your balance and the amount of any interest you pay overall. Just be aware that early repayment charges could apply. This might also stop you falling into persistent debt.

More about managing your money

A summary on affordability

A budget could help you to understand your financial position, then make more informed decisions.

  • List your regular income from employment, investments, benefits, pensions, and so on.
  • Make sure you factor in your regular expenses, including household bills, travel and living costs.
  • Once you've worked out how much you owe, it might help to consider debt consolidation options.
  • When you apply for credit, lenders will look at what you can reasonably afford to repay, based on an assessment of your credit record and personal circumstances.

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