How to live on 80% of your usual income

Coronavirus could be making a huge impact on your money. You might be spending more than usual if your kids are home all day, or paying more for bills and groceries. Maybe you’ve had a pay cut, gone on furlough, had clients cancel, not been able to work, or lost your job entirely.

If you’ve suddenly found yourself living on much less money than before, it might be useful to change your budget. Or it could be the right time to start budgeting in the first place, now the money you have has to stretch much further.

A budget sets out how much money you expect to have coming in and going out over a certain period of time. The aim is to make sure your income can cover your expenses. 

We’ll show you how to create a simple budget in three steps

You’ll need:

• A spreadsheet or an app that helps you budget (like Monzo!)

• The most up to date information about your income (like your most recent payslips) and your monthly spending (from a bank statement or your Monzo account)

We’ll focus on creating a monthly budget, but you can adjust it to be weekly or daily if you like.

1. Work out how much money’s coming in

To make a budget, you need to know how much money you have to work with every month. And if you’ve been affected by coronavirus, this might’ve changed significantly. 

If you’re on furlough

If your employer’s put you on furlough, they could pay you 80% of your regular wages through the Coronavirus Job Retention Scheme, up to £2,500 a month (before tax). Your employer will still pay you (and give you a payslip), and you’ll still pay taxes from your income. 

To find out your income, look at your most recent payslip from after you went on furlough. Use the net pay figure on your payslip as this is the amount you’ll actually take home.

If you’ve had a pay cut

If you’re employed and get a salary, you can find out your new income by looking at a payslip from after your pay cut. Use the net pay figure on your payslip as this is the amount you’ll actually take home. 

If you’ve not been paid your new lower salary yet, try using a salary calculator to find out your new income.

If you’re self-employed and lost some or all of your income

The government are setting up the Self-employment Income Support Scheme to help self-employed people who’ve lost income because of coronavirus.  

There are some rules about who can claim, which you can find on the government website.

But the online service you’ll use to claim isn’t available yet, and the government say HMRC will aim to contact you by mid May 2020, and will make payments by early June 2020.

This scheme will let you claim a taxable grant worth 80% of your trading profits up to a maximum of £2,500 a month (before tax). It’ll be available for 3 months (but the government might extend it). And you won’t need to pay it back.

You can make a claim for Universal Credit while you wait for the grant. 

If you’ve lost your job or you’re on a low income 

You might want to apply for Universal Credit, usually a single monthly payment from the government meant to cover your living costs and rent if you're out of work or on a low income.

Universal Credit is 'means tested', which means the government base how much money you get on your household circumstances and your existing income. You could use the Turn2Us benefits calculator to get an overview of what benefits you could be entitled to.

If you get approved for Universal Credit, it normally takes five weeks after the date you submitted your claim for you to get the first payment. Once you know how much your estimated first payment will be, you can start to create a budget.

Find out more how to apply and how much you could get by reading our guide to getting Universal Credit. 

Don’t forget to include other sources of income if you have them, like:

• Freelance fees

• Tips, bonuses and commission

• Government benefits, like jobseeker’s allowance

• Student loan or grant

• Interest earned on savings

• Dividends (money you get for owning shares in a company)

• Capital gains (money from selling something valuable, like property)

• Savings 

Add everything up to see the total amount you have to work with.

2. See how much money’s going out 

Next, you need to know how much money you’ll spend each month. Again, this might’ve changed a lot because of coronavirus. 

Now we’re on lockdown, you might not be spending anything on eating out or travel. But because we’re home all day, you might be spending more than usual on bills or groceries, especially if you have a family. 

Find out how much you’re spending 

To get an accurate picture of your money during coronavirus, it’s important to use real, recent information about your spending. It’s best not to guess or use rough estimates, especially if money’s tight. 

If you use Monzo, you can see your spending in the app. We’ll also show you how much you’re spending in categories like:

• Bills

• Groceries

• Shopping

• Eating out 

• Entertainment

• Family

• Transport

• Personal care

Lockdown started on 23rd March, so use Monzo to see how you’ve been spending since then. If you have other cards and bank accounts, don’t forget to include them too. 

Split your expenses into needs and wants

It’s useful to split your expenses into two categories:

Needs – These are expenses you have to cover to have an acceptable quality of life, like:

• Rent or mortgage payments

• Council tax

• Energy and water bills

• Basic food, clothing and personal care items

• Internet and mobile phone contract

• Minimum payments on credit accounts (you may run into financial and legal issues if you don’t pay these)

• Travel costs for getting to work if you’re a key worker and can’t work from home

It’s best to start with the absolute basics, and go from there. 

If you’re paying off debts, it can be helpful to prioritise them in a certain order. Choosing the right debts to pay first can help you save money on interest, avoid penalties and charges, and even clear your debt faster. Learn more about different ways to pay off your debts.

Don’t forget to factor in any expenses you pay annually or quarterly, that might be coming up soon, such as car insurance or bills. You might want to work this into your monthly budget by putting aside part of the cost every month.

Wants – These are the purchases that aren’t absolutely essential.

Here are some common examples of ‘wants’:

• Movies, music and video games

• Booze, fancy food and takeaways

• Expensive clothes and furniture

• Beauty products

3. Compare your income and expenses

Now for the most important step: subtract your total monthly expenses from your total monthly income to find out if your income covers your expenses. 

Here’s an example:

Balance your budget

If you’re left with a positive number, that’s a great start. But you might want to adjust your spending anyway, to help you work towards financial goals like paying off debt. Or if you’re worried about job security and want to start building up an emergency fund. 

Remember, it’s always good to leave a little extra in the bank for unexpected expenses and emergencies. This helps make sure you don’t miss a payment or go into an unarranged overdraft.

A negative number means you need to spend less or get more money coming in. This is called balancing your budget. 

Here are a couple of things you could try to balance your budget.

1. Reduce your spending

In the example above, you could try to reduce your spending in one of the “wants” categories. Try cutting back on shopping or takeaways, or see if you could cancel or pause a subscription you’re not using. Just watch out for any cancellation fees!

If you’re struggling to cover any of the payments in your “needs” categories, it could be worth reaching out to your provider or your lender, to see if you could get a holiday or discount on the payments. 

For example, mortgage payment holidays are available if you’re a homeowner and you’re up to date on your mortgage payments. 

And they’re also available to buy-to-let landlords whose tenants have been financially affected by coronavirus. So if you’re renting, your landlord could get a payment holiday and pass it onto you. 

2. Increase your income 

Another way to balance your budget is to get more money coming in. But it isn't always easy! 

See if you can find ways to bring in some extra money safely, by selling old clothes online or picking up extra work remotely. And it’s worth researching if there are any government benefits you could be eligible for.

Living off much less money than before isn’t easy. But budgeting could help you get control over your money now, and help you prepare for the future after coronavirus.

And remember, if you use Monzo, we’re here to support you 💛