What is a realistic budget?

What is a realistic budget?

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A realistic budget will be based on your actual incoming and outgoings rather than what you’d like them to be and will take into consideration what your outgoings are each month. Realistic budgets will also change as your outgoings do and will take costs away from your desired spends rather than the other way around.

A realistic budget will often be split out like in this pie chart. To plan out a budget similar to this, you can use this spreadsheet to plan your realistic budget based on your monthly income:

How to set a realistic budget

Divide your monthly income across your outgoings like this:

  • Rent/mortgage - 35%
  • Utilities - 5%
  • Transport - 15%
  • Food - 5%
  • Debt repayments and savings - 10%
  • Spends - 30%

Adjust the amounts based on your circumstances and bear in mind that you should always pay more than the minimum repayment amount on your debt.

How much should I spend on rent or mortgage payments?

It’s commonly advised that you should spend about 35% of your monthly income on expenses such as rent or mortgage payments. However, how much you actually spend on rent or mortgage payments will also depend on where you live.

Across the UK, rent costs an average of 31.1% of a person’s salary. This figure is considerably higher in London (35.9%), although it is lower in other parts of the country (e.g. the average in the North West is 28.7%). For this reason, you can’t be too hard on yourself if rent is higher where you live, so take a look at the table below and see how your current situation compares to the average in your area.

RegionPercentage of Income on Rent
South West32.5%
South East31.8%
East England30.7%
West Midlands29.6%
East Midlands28.8%
North West28.7%
Northern Ireland27.7%
Yorkshire & Humber26.7%
North East24.4%
UK Average31.1%

The only point worth considering after looking at the table is that this is the average and should therefore only be used as a rough guideline. Just because you spend more on rent than the average doesn’t mean you need to move right away, but it might mean you need to consider other areas in your budget where you can cut back. Equally, if you want to save your money, you might want to look to rent somewhere that will take up a smaller portion of your income than the average.

How much should I spend on utility bills?

You should aim to spend about 5% of your monthly income on utility bills such as gas, electricity and water. This figure is in line with the average spend on utilities in the UK, and this also means you end up spending the recommended 35% on bills and rent or mortgage payments if you’re sticking to a sound budget.

Depending on how much you earn and how much your rent or mortgage is, this may leave you with a fair chunk to budget with, or with only a small amount to spend. If you find that you’re spending more than you’d like on your monthly utilities, check out our tips on how to save more money at home.

How much should I spend on transport?

You should try to spend less than 15% of your monthly income on transport, which is in line with what the average household in the UK. How much you need to spend might vary depending on several factors.

Firstly, your commute will inevitably eat into much of your transport budget. Added to this, your commute may be more or less expensive depending on whether you have a car or use public transport to get to work. Some people will also spend more as their job requires them to visit people at their homes (e.g. plumber).

Secondly, the size of your family will also have an impact. If you’re also taking your children to school and other activities, this will add up over the year. Your extended family will also impact how much travel ends up costing you, as more frequent visits to family who live further away will stack up as the year goes on.

Lastly, any running repairs or new purchases will affect your transport budget. Although taking the train may be more expensive than paying for petrol, a failed MOT could set you back quite a bit, so added expenses like MOTs or finance plans on your vehicle must be considered when putting together a budget.

How much should I spend on food?

The average family in the UK spends £58.50 on food each week, so try to plan your budget with this figure in mind. Of course, depending on your family size and added dietary needs, you might end up spending a lot more or less than this.

Depending on where you live, supermarkets might also be priced slightly differently. In London, the average weekly spend is £62.40, whereas a family in the North East typically spends just £51.90 per week on food. You should also consider the cost per person. In the UK, the average cost of a weekly shop for one person is £25.83, meaning that a family of five will spend around £129.17 in the same period.

For more help planning a food budget, check out our guide on shopping for food on a budget.

How much should I spend on debt repayments?

Only paying the minimum amount on your cards means you’ll find it hard to ever get out of debt. If you only pay the minimum repayment amount, you could find yourself in what’s known as “persistent debt”.

What is persistent debt?

According to the Financial Conduct Authority, persistent debt is when you pay more in interest and charges over the course of an 18-month period than is paid towards reducing the debt.

What is persistent debt?

According to the Financial Conduct Authority, persistent debt is when you pay more in interest and charges over the course of an 18-month period than is paid towards reducing the debt.

If you find yourself in persistent debt, your lender will contact you at three different points to address the problem.

  • After 18 months - the lender will let you know you’re in persistent debt and encourage you to pay more than the minimum monthly repayment.
  • After 2 years and 3 months - the lender will send you a reminder, usually repeating the previous message and warning you that action will be taken if the situation doesn’t change in the next 9 months.
  • After 3 years - the lender will reach out with an action plan for you to pay off the remainder of the debt within a reasonable period (usually around 3-4 years). If you don’t take action, they might suspend your card.