The Extra Income Budget Method (How I Paid Off Debt & Bought a House)

Today I’m going to show you how I used The Extra Income Budget MethodTM to pay off debt and start to live the life I wanted.

Some things that I was able to achieve because of this method include:

  • Paying off my debt
  • Buying a car
  • Buying a house
  • Paying for laser eye surgery and Invisalign

And did I mention that I did this whilst being a single mum and starting with a tiny (I’m talking £200 – £300/month) income?

Within this article I’m going to show you how to use The Extra Income Budget MethodTM, and why it will change your life.

Purchase your own budget planner here!

Ready? Let’s get started:

Why Should I Budget?

Firstly, I wanted to start with why we should all be budgeting – and to dispel the myth that budgeting is restrictive.

Let’s think about it this way. You get paid, then you pay your bills. You have until your next payday to pay for other things, such as food, fuel and entertainment.

You have a savings goal, such as saving up to buy a house, so you make a token effort to put some into savings.

Then it comes to the end of the pay period, and something goes wrong. In this example it could be that the car needs repairs – how are you going to pay for it? The likelihood is that it will either be put on the credit card, or to take that money back out of savings.

Does that sound familiar?

I’m not saying this to make you feel bad at all – but to show how easy it is to be stuck in a cycle of living paycheque to paycheque.

What about when Christmas comes around and you want to buy a bunch of presents – how are you going to pay for it? Or when your child has a birthday party invite and you need to get a present? These are all things that can be planned for in advance with budgeting, and can relieve a lot of financial stress.

The Extra Income Budget Method

This is my totally unique budgeting method, which I used to pay off my debt, live on one income and reach my savings goals. I was never earning a lot of money, so I had to budget really carefully. When I started earning extra money, I had to still be really intentional with my money so that I could stay on track.

If you’re wondering what the extra income budget method is, and why it’s so unique, I’d love to share that with you!

What I personally found, was that if I needed to pay for something that was outside of my usual budget, I would have to cut into my budget – which was really stressful.

I felt as though I was counting every penny, and I wanted a bit more freedom with my money. Soon, I started earning extra money on the side. Instead of lumping the extra money in with my usual budget, or just spending it, or not tracking it, I was very intentional with it.

The extra income that I earned would go towards my goals, and my goals alone.

This meant that my normal budget would be untouched. I would use one source of income for my bills etc, and then any extra money would be used towards my goals – starting with my debt.

This might sound obvious, but I found that no-one else was doing this, and it was a game-changer for me.

We will take a look now through the budget planner and the budgeting process that I follow:

Tracking Spending

This is one of the most important steps that you can take when it comes to budgeting, and this is the first step that I advise people take when working on their finances.

All that you need to do is write down everything that you are spending everyday. I realise that this may sound really boring, but I assure you that it’s incredibly important and will help you out so much.

The categories that you write down will be personal to you, and they should come up quite naturally when you look back at what you’re spending money on, but it will be categories such as:

  • Food
  • Fun
  • Entertainment
  • Beauty
  • Kids
  • Pets
  • Fuel

Don’t get too hung up on the categories, as you can refine them as you go along. The most important thing is to start getting into the daily habit of tracking your expenses.

The reasons that tracking spending is important is that we need to see what’s actually going on. It’s all too easy to swipe your card and have no idea how much you are spending.

Filling out the expense tracker will get you in a good daily habit, will show you where your money is going, keep you accountable, and help you to create a realistic budget going forward.

Looking at Your Bills (Bill Calendar)

The next step in creating a budget is to map out all of your bills. I have a Bill Calendar in my budget planner which helps to do this.

This is really important, especially if you get paid more than once in a month. If you get paid more than once a month and your bills are spread out throughout the month, this will help you select which pay cheques you will use for each bill.

Use the Bill Calendar to write out the dates that all of your bills are coming out – it’s been left blank so that you fill in the days of the month and then write your bills in the relevant box.

The best place to get this info is usually within your internet banking under the ‘Direct Debits’ section (may be called something else on yours) or on previous bank statements.

Figure Out Your Variable Spending

Variable spending is the area that most people trip up in – this is the area that varies from month to month. It’s easy to get this wrong, if you aren’t tracking your spending.

When you are creating your budget and writing out the amounts that you spend in each category, a lot of people guess the amounts…and this is where it goes wrong.

If you are guessing how much you are spending, you could be wildly wrong.

Say you are thinking about how much you spend in your Food category, and you reckon that you spend around £300 a month, so that’s what you write down.

But what if you aren’t actually spending that much?

If you are really spending £500 a month, but you’ve given yourself a £300 budget, you’re setting yourself up to fail. This is also where people fail and then give up on the idea of a budget because they think it’s just not working.

You need to create realistic amounts, and this comes from tracking your spending. If you haven’t started properly tracking your spending yet, you should be able to go back through previous bank statements to get an idea.

Budget Plan

I have a Budget Planner sheet within my budget planner, and this is a very important page, because it’s where you will map out your entire budget.

Just to note: there are 4 budget planner sheets for each month within the planner, so that if you get paid multiple times a month you can make a separate budget for each payday.


This is where you write in your income for the month/that payday. You should include any income that you get, such as child support payments etc.

Fixed Expenses

These are your bills, and you can get these from your internet banking or bank statements. They are the expenses that tend to be the same each month e.g. rent/mortgage, utilities, phone bill and so on.

Variable Expenses

These are the expenses that we discussed before – the ones which vary from month to month and where you can easily go wrong. Don’t worry though, as tracking expenses will help you get this part nailed.

Go back through your expense tracker or your bank statements and add up how much you have been spending in each category. You may want to go back a few months so that you can get a general overview. It will take a bit of time but it will get easier as you go along because you’ll have your general category amounts.

The categories that you choose will be unique to you, and you can always change or adjust these as you go along.

The most important thing to note is that it doesn’t have to be ‘perfect’ right off the bat – the main thing is to get started and do your best.

Once you’ve got this all written out, you will be able to do the equation of Income – Expenses = ?

When people don’t have a budget in place, what tends to happen is that all of this money left over gets spent. There’s nothing wrong with spending money, and I encourage you to spend your money…on things that make you happy. Truly happy, not a random impulse purchase that gave you that ‘buzz’.

This step is super important, because this is where you are able to get ahead in life and start working towards your goals.

I always like to give the example of when you aren’t budgeting, you have the money left after paying bills like we said, right? And you have some goals, maybe saving for a house deposit. So you put a token amount away in a savings account.

Then some things will happen that you haven’t planned for. This could be a big expense like losing your job or your car needing big repairs, or it could be on the smaller scale such as your kids birthday.

So what happens when you haven’t planned for these in advance?

You’re going to pay out the money regardless of if you have it or not, so this is where it will usually get put on a credit card, or taken out of your savings.

Can you see the cycle here? And can you see the way that we can avoid this?

I hope that you can see that I’m not being all doom and gloom, but rather that we can put together a plan and use the budget as a way to get you prepared for the future and avoid any unnecessary stress.

Sinking Funds

This is one of the steps on the budget planner sheet, and it may be something that you haven’t heard of before. Sinking funds are essentially mini savings pots for things that you will be paying out for in the near future.

Examples of possible sinking funds include:

  • Birthdays
  • Christmas
  • Car maintenance
  • Annual car MOT
  • Back to school

Think of events that will be happening throughout the year that you may struggle to pay for all in one go. You don’t have to have a sinking fund for every single event that’s going to be coming up as that may get a bit confusing. Pick the ones which you would have a hard time cash flowing and go from there.

You will want to figure out how much money you will need by the time the event rolls around, and then divide that by how many months are left until then. This will give you the amount that you will need to save each month in order to reach your goal.


You’ve got to have some savings goals in place. Not just saving for savings sake, but having clear goals that you want to achieve. These don’t have to be huge goals, but it’s a good idea to have something to aim for.

This could be something smaller, such as a holiday, or bigger such as saving for a house deposit or early retirement. All of these are possible with a plan!

Every month, put some money towards your savings goals without fail. Your savings goals are probably the most important goals that you will be working towards, so it’s essential that money goes towards them.

Debt Payments

If you are in debt you need to fill this section out. If you aren’t in debt then please feel free to ignore it! When you have debt, you will want to make sure that you are putting money towards it every month. You will of course have your minimum payments, but can you find any more from your budget to include?

Extra Income Budget

This is the unique step in my budgeting method! This is the most exciting part for me, and I know that it will change everything for you as well.

Back when I was in a bad place financially, I was budgeting and doing a really good job of it (if I do say so myself!). I found it easy because I didn’t have any spare cash to splurge. I had to budget my money properly or I would be screwed.

Because my budget was so tight, I found that if anything came up that wasn’t included in my budget, it would be a cause of major stress. I was also more likely to do things like increase my food budget than put money towards savings.

I realised that I needed to get some extra money coming in, and I tried out a bunch of different side hustles, with a lot of success!

Once I started earning that extra cash I knew that I wanted it go towards my goals. My main goal at the time was paying off my debt, so this is where it went.

When I get extra income, I log it on this sheet – using the money that I have earned the previous month because then I know how much I am working with in total.

So when you get extra income to use for that month, work out which of your goals you want to use it for. You can see on here that the sections are for debt payments, sinking funds and savings. Use your extra income to get you closer to your goals!

The other reason that I love doing this is because it means that you don’t have to reduce anything on your main budget sheet. You don’t have to cut back on any of the expenses on there, which means a lot less stress for you. I also find it motivates me to start earning more money!

Side Hustle Tracker

Going off what I was mentioning above about the extra income budget sheet, this is the sheet that you will be filling in throughout the month to allow you to see how much extra money you have been earning on side hustles.

When you earn extra money throughout the month, write it on this sheet. At the end of the month, you will add it all up and then write the total on the extra income budget sheet, and decide what you want to do with it then.

If you want to use it before the end of the month that’s absolutely fine and up to you – but make sure that you make a note of it.

Examples of side hustles that I’ve done include:

End of Month Analysis

Ok so you wrote all of that down, but now what? As important as writing it all down, you need to analyse it all and see how you’re getting on. This is where the End of Month Analysis sheet comes in!

I put together this sheet to look at the budget and savings targets at the end of the month, to see the difference between the budgeted amount and the end result.

There’s also a handy progression chart at the bottom which you can fill in each month to compare how you’re doing from month to month.

That’s the end of the main budgeting process, but there are some other sheets within the budget planner that will help you keep on track with your budget each month!

Cash or Card?

You can use the cash envelope method with my budgeting method, but you don’t need to. You can use your card or a combination – whichever works best for you.

If you did want to use cash envelopes I have some gorgeous free ones that you can print off and use.

This budgeting method changed my life. Looking back, I can’t believe how much has changed. If you want to be in a better place with your money, I can promise you that this budgeting method will help get you there.

Do you currently budget? Would you like to give this method a go? Don’t forget to get your own version of the budget planner!