Knowing what you can afford

Before you borrow, it’s important to consider what you can reasonably afford to repay.

Budgeting basics

Start by making a list of your earnings and everything you spend in any given month, highlighting where your money is going, and where you could make savings. Could you make your money work harder, helping you to achieve your financial goals?

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

  • A budget isn’t just for people trying to manage debt.
  • The aim isn't to restrict your freedom but, instead, to help you make better spending choices.
  • Making the most of your current earnings could be easier than you’d expect.

Before you borrow

It’s worth considering whether you’ll be able to manage repayments over time, factoring in any borrowing costs, like interest, fees and charges.

The future is unpredictable, so consider how you’d cope should the unexpected happen, like increased interest rates, reduced hours at work, a period of sickness or being made redundant.

Try our budget calculator

How much money do you have coming in?

Figuring out your regular income is the first step in creating a budget. Although for many people, wages from an employer is their main source of income, you may also receive money from:

  • Self-employment, whether that’s your full-time job, or something you do part-time.
  • Benefits, such as tax credits or disability allowances.
  • Investments, such as ISAs, share dealing, property or premium bonds.
  • State or private pensions.
  • Gifts or inheritance.

If you have shared financial commitments, such as joint accounts or utility bills, it’s worth assessing your household income as a whole, even if you generally keep your personal finances separate.

For many couples, money is a stressful topic, 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.

What do you spend?

Get all of your financial information together, and list out your essential monthly expenses. These could include things like:

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

Your budget should also account for things you pay for less frequently, but perhaps once or twice each year. These could include things like:

  • Vehicle expenses, such as road tax, insurance renewals, tyres, servicing or an annual MOT.
  • Seasonal essentials, such as winter coats and footwear, or summer clothing.
  • Insurance policies you pay annually, such as car, medical or home cover.
  • Annual passes, such as train, local attraction or cinema tickets.
  • Celebrations and gifts for birthdays, festivals and feast days.

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

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

Based on your income and your outgoings, are you living beneath, within or above your means? Knowing where you stand, could help you to make more informed decisions in future.

How to manage your bills

Benefits of living within your means

Having fewer money worries is the main thing, but there are many other benefits to following a budget and living within your means:

  • You’ll be more likely to avoid excessive and persistent debt, or future financial difficulties.
  • You could build your savings, making it easier to manage unexpected challenges.
  • Focusing on ‘needs’ first, could help you to avoid making impulsive purchases.
  • You may be able to repay existing debts faster, saving on borrowing costs.
  • Establish a habit of saving or investing for your future needs.
  • Have money saved to take advantage of limited time offers.
  • Have fewer stresses and arguments about money.
  • Feel more in control.

Do you have existing debts?

If you have a number of debit balances on things like credit cards, personal loans, overdrafts, car finance and store cards, you may have several monthly payments to manage. Not only that, but different interest rates may also apply to each balance, making it difficult for you to understand your borrowing costs.

Could you benefit from reviewing your existing borrowing, even including your mortgage, to see if you could make savings on your borrowing costs?

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

How to consolidate debt

Are you saving anything?

Saving could give you a safety net should the unexpected happen. You could also put your money to work by investing, in the hopes of boosting your balance in future.

You could also put your money to work by investing, in the hopes of boosting your balance in future. Just bear in mind that the value of investments and any income from them can fall as well as rise, and you may get back less than you invest.

There could be a number of opportunities to save more money, by adjusting your current spending:

  • Try to repay debts faster, helping to reduce your borrowing costs.
  • Shop around when your insurance renewals are due.
  • Move to a cheaper phone and internet tariff.
  • Shop around to save on everyday essentials.
  • Switch to a cheaper television subscription.
  • Switch to a cheaper utilities provider if possible, and keep track of your energy usage.
  • Cut non-essential spending.

It might help to keep a note of everything you spend. Even small purchases mount up over the course of a month. 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 helpful way to monitor your spending.

Saving tips and tools

Save The Change®

If you’re using a Lloyds Bank 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 Lloyds Bank savings account, helping you to save without really thinking about it.

More about Save the Change®

Review your budget regularly

There are no rules here – check your budget every day, week or month if you prefer – but it’s worth a review any time:

  • Your income increases or decreases.
  • Your regular costs increase or decrease.
  • You’re planning a large purchase or expense.
  • You’ve paid off a debt – how will you put any extra money to good use?

Planning to apply for credit?

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 may 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 expenditure.


Lenders might review what you can reasonably afford to repay, based on your income, outgoings and existing borrowing.

Your account history

Lenders usually keep records about accounts you’ve held with them in the past, including information about how well they’ve been managed.

5 tips for managing credit

  1. 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.
  2. Make sure you understand the cost of borrowing, including interest, fees and other charges.
  3. Regularly check your statements and online accounts, helping you to keep track of your balances, payments due and recent transactions.
  4. Make payments on time to avoid extra fees and charges, losing any introductory or promotional interest rates, and to prevent any negative impact to your credit score.
  5. Repay as much as you can, wherever possible, to reduce your balance and the amount of any interest you pay overall, although be aware that early repayment charges may apply. This could also help you avoid falling into persistent debt.
More about managing your money

Key points about affordability

Creating a budget should help you understand your expenses, and what else you could afford.

  • What’s your regular income from employment, investments, benefits, pensions etc?
  • What are your regular expenses, including household bills, travel and living costs?
  • Once you've worked out how much you owe, you could 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.

Where next?

Know where you stand with Lloyds Bank

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