ABC English Online · Life Skills Series

Money, Budgeting & Saving

A practical guide to understanding personal finance — vocabulary, key concepts, real strategies and interactive exercises. European context, B1–B2 level.

Level B1–B2 Topic Personal Finance Skills Reading · Vocabulary · Speaking Exercises 5 Types

Why Money Management Matters

Managing money well is one of the most important life skills — yet it is rarely taught directly. Whether you are saving for a goal, dealing with debt, or simply trying to make ends meet, understanding personal finance gives you more control, less stress, and more choices in life.

An important distinction: gross vs. net income

Your gross income is what your employer pays before deductions. Your net income — sometimes called take-home pay — is what actually arrives in your bank account after tax and social security contributions are removed. Always budget using your net income, not your gross figure. In most EU countries, the difference can be 20–35%.

Budgeting

A budget is a plan for your money — listing your income and expenses to understand where every euro goes. It is the foundation of all financial control.

Saving

Saving means putting money aside regularly for future needs — whether a rainy day fund, a holiday, a home, or retirement. Even small amounts add up significantly over time.

Debt Management

Debt is money you owe. Managing it means understanding interest rates, prioritising repayments, and avoiding high-cost borrowing wherever possible.

The European context

In EU member states, employees receive a monthly payslip showing gross income, income tax, and social security contributions. Rental costs, utility bills (electricity, water, internet), food, and transport typically represent the largest household expenses. VAT (Value Added Tax) is included in almost all prices you see in shops. Pension contributions are often automatic — but voluntary private pension supplements are increasingly common and encouraged by governments across Europe.

Key Vocabulary

Master these essential words before moving to exercises. Each entry includes the part of speech, a clear definition, and a natural example sentence.

A — Income & Earnings

noun

income

Money received regularly from work or other sources.

“My monthly income barely covers my rent.”

noun

salary

A fixed monthly payment from an employer.

“She receives her salary on the last day of the month.”

noun

wage

Pay calculated by the hour or day, often for manual work.

“The minimum wage has increased this year.”

noun

bonus

Extra pay on top of regular salary, often for performance.

“He received a Christmas bonus this year.”

noun

pension

Regular income paid to someone who has retired from work.

“She started contributing to her pension at 25.”

noun

allowance

A fixed sum given for a specific purpose or person.

“Parents often give children a weekly allowance.”

B — Spending & Expenses

noun

expense

Money spent on something; a cost.

“Rent is my biggest monthly expense.”

noun

fixed costs

Costs that are the same every month (rent, loan repayments).

“Fixed costs are hard to reduce quickly.”

noun

variable costs

Costs that change each month (food, transport, leisure).

“Variable costs are easi soco control.”

verb

afford

To have enough money to pay for something.

“I can’t afford a holiday this year.”

verb

overspend

To spend more money than planned or available.

“It’s easy to overspend when using contactless payment.”

noun

impulse buy

Something bought suddenly, without planning.

“That coffee machine was an impulse buy — I regret it.”

C — Saving & Budgeting

noun / verb

budget

A plan for how to use money; to plan spending.

“We need to budget more carefully this month.”

noun

savings

Money set aside and not spent.

“She has three months of savings in her account.”

noun

emergency fund

Money saved specifically for unexpected costs or crises.

“An emergency fund helped when the car broke down.”

verb phrase

save up

To collect money over time for a specific purpose.

“They’re saving up to buy a flat.”

adjective

thrifty

Careful with money; avoiding unnecessary spending.

“My grandmother was very thrifty — nothing was wasd d.”

noun

direct debit

An automatic bank payment on a fixed date each month.

“My rent is paid by direct debit on the 1st.”

D — Debt & Borrowing

noun

debt

Money owed to another person or institution.

“He has significant debt from his student loan.”

noun

loan

Money borrowed (usually from a bank) to be repaid with interest.

“She took out a loan to buy a car.”

noun

interest

Extra money charged when borrowing, or earned when saving.

“The loan has an interest rate of 5% per year.”

noun

overdraft

Spending more than is in your bank account (often charged a fee).

“Try to avoid going into your overdraft.”

verb phrase

pay off

To finish repaying a debt completely.

“It took five years to pay off her student debt.”

adjective (informal)

broke

Having no money.

“I’m completely broke until Friday.”

Core Concepts & Strategies

These are the key frameworks and strategies used in personal finance. Understanding these will help you read financial advice, discuss money matters, and make better decisions.

50/30/20

50%Needs

30%Wants

20%Savings & Debt

The 50/30/20 rule is a simple starting framework for dividing your net income each month. It was popularised by US Senator Elizabeth Warren but is widely used across Europe as a practical budgeting guide.

50% — Needs: rent, food, utility bills, transport, insurance, minimum debt repayments — costs you cannot avoid.

30% — Wants: dining out, entertainment, clothing, subscriptions, hobbies — things that improve life but are not essential.

20% — Savings & debt: emergency fund, savings goals, extra debt repayments, pension contributions.

Example — Net income: €1,800/month

Needs (50%)€900 — rent €600, food €180, transport €80, utilities €40

Wants (30%)€540 — restaurants €100, streaming €30, clothing €150, leisure €260

Save (20%)€360 — emergency fund €150, holiday savings €100, pension top-up €110

NoteThis is a guide, not a rule. High rent areas may push needs above 50%.

AVALANCHE

Highest InterestPay first

Minimum on OthersKeep current

Saves Most MoneyLong-term

The avalanche method is a debt repayment strategy. You list all your debts and focus extra payments on the one with the highest interest rate first, while making only minimum payments on all others.

Once the highest-interest debt is cleared, you move to the next one. This approach is mathematically optimal — it saves the most money in interest over time.

An alternative is the snowball method — paying off the smallest balance first for psychological motivation, even if it costs more in interest overall.

Example — Three debts

Credit card€1,200 at 18% — pay extra here first

Personal loan€4,000 at 9% — minimum payments only, for now

Car loan€6,000 at 4% — minimum payments only, for now

ResultClearing the credit card first saves the most interest overall.

PAY YOURSELF FIRST

AutomateDirect debit

On paydaySame day

Before spendingNot after

“Paying yourself first” means setting up a direct debit to move a fixed amount into a savings account on the same day your salary arrives — before you have a chance to spend it.

This removes the temptation and the decision. Instead of saving what is left over at the end of the month (which is often nothing), you make saving automatic and non-negotiable.

Even saving just €50–€100 per month consistently over two years builds a meaningful emergency fund without any conscious effort.

How to set it up

Step 1Open a separate savings account (not your everyday account)

Step 2Set a direct debit for the day your salary arrives

Step 3Start small — even €50/month is enough to begin

Step 4Increase the amount as your income grows or debts reduce

Fixed vs. Variable costs — why the distinction matters

Understanding which of your costs are fixed (rent, insurance, loan repayments — the same every month) and which are variable (food, transport, entertainment — changing each month) is essential. You can rarely reduce fixed costs quickly, but variable costs can usually be lowered within weeks. When you need to cut your spending, always start with your variable costs first.

Fixed Costs

Rent or mortgage repayments

Loan repayments (car, personal, student)

Insurance (health, car, home)

Internet & phone contracts

Subscriptions (gym, streaming services)

Tax payments if self-employed

Variable Costs

Groceries and household shopping

Dining out and takeaways

Transport (petrol, taxi, bus tickets)

Clothing and personal items

Entertainment and socialising

Gifts and discretionary spending

Savings Goals

Emergency fund (3–6 months of expenses)

Short-term goals (holiday, appliance)

Medium-term goals (car, deposit for flat)

Long-term goals (retirement, children)

Pension top-up contributions

Extra debt repayments (above minimum)

Key Phrases & Expressions

These expressions are used naturally when talking or writing about money in English. Learn the meaning, register, and typical context for each.

Expression	Meaning	Example in context	Register
make ends meet	to have just enough money to cover basic needs	“With rent so high, it’s hard to make ends meet on one salary.”	Neutral / spoken
live within your means	not to spend more than you earn	“The key to financial stability is living within your means.”	Formal / written
cut back on	to reduce spending on something	“We had to cut back on eating out to save money.”	Neutral
put money aside	to save a portion of income regularly	“Try to put a little money aside each month.”	Neutral / spoken
be in the red	to have a negative bank balance; owe money	“His account has been in the red for three weeks.”	Neutral / business
be in the black	to have money in your account; positive balance	“Finally, after two difficult months, we’re back in the black.”	Neutral / business
a rainy day fund	savings kept for difficult or unexpected times	“I always keep a rainy day fund just in case.”	Informal / spoken
run out of money	to have no money left	“We ran out of money before the end of the month.”	Neutral / spoken
tighten your belt	to spend less because money is short	“We’ll have to tighten our belts until things improve.”	Informal
pay yourself first	save money before spending the rest	“The best savings tip is to pay yourself first.”	Financial advice
impulse buy / splurge	to spend impulsively on something unnecessary	“I had a splurge on shoes — I need to cut back.”	Informal
get into debt	to begin owing money	“It’s easy to get into debt if you use credit cards carelessly.”	Neutral
pay off a debt	to clear a debt completely	“It took seven years to pay off his student loan.”	Neutral
take out a loan	to borrow money from a bank or lender	“They took out a loan to renovate the kitchen.”	Neutral / formal

Exercises

Five exercise types — gap fill, matching, True/False/Not Given, multiple choice, and sentence transformation. Click Check Answers to reveal the key.

Gap Fill

Choose the correct word from the word bank to complete each sentence. Use each word once only.

Word Bank

budgetafforddebtsavingsoverspendinterestsalarythriftyfixed costsimpulse buy

My rent and loan repayments are my — they never change each month.
She decided to €80 from her into a savings account before spending anything else.
When you borrow money from a bank, you pay on top of the amount you borrowed.
He couldn’t the new laptop, so he waited six months for a sale.
Buying that jacket online at midnight was definitely an .
It is very easy to when you use a contactless card and do not check your balance.
My grandmother was very — she never wasted food or threw anything away unnecessarily.
After years of struggling, they finally paid off all their last year.

» Answer Key — Exercise 1

1.fixed costs

2.budget / salary

3.interest

4.afford

5.impulse buy

6.overspend

7.thrifty

8.debt

Matching

Match each word or phrase in Column A with the correct definition in Column B. Write the letter next to the number below.

Column A

1. emergency fund

2. overdraft

3. direct debit

4. variable costs

5. make ends meet

6. pay off

7. pension

8. cut back on

Column B

a. to finish repaying a debt completely

b. regular income after retiring from work

c. to reduce how much you spend on something

d. spending more than is in your bank account

e. costs that change from month to month

f. an automatic bank payment on a set date

g. money set aside for unexpected problems

h. to have just enough money for basic needs

Answers: 1___2___3___4___5___6___7___8___

» Answer Key — Exercise 2

Key:1?g · 2?d · 3?f · 4?e · 5?h · 6?a · 7?b · 8?c

True, False or Not Given

Click T (True), F (False), or NG (Not Given — the text does not say) for each statement. These are based on the reading in the Concepts section.

1.You need a high income to manage your money well.
T
F
NG
2.The 50/30/20 rule suggests spending 20% of income on needs like rent and food.
T
F
NG
3.An emergency fund should ideally cover three to six months of living expenses.
T
F
NG
4.Fixed costs are easi soco reduce than variable costs.
T
F
NG
5.The guide recommends investing in the stock market to grow savings.
T
F
NG
6.The avalanche method focuses extra payments on the debt with the highest interest rate.
T
F
NG
7.“Paying yourself first” means saving before spending the rest of your income.
T
F
NG
8.The guide says credit cards should be completely avoided.
T
F
NG

» Answer Key — Exercise 3

1.F — The introduction states you do not need a high income, only planning and discipline.

2.F — 50% is for needs, not 20%.

3.T — Stated in the Avalanche / Emergency Fund concept.

4.F — Variable costs are easi soco reduce; fixed costs are harder.

5.NG — Stock market investing is not mentioned in this guide.

6.T — This is the definition of the avalanche method.

7.T — Paying yourself first means saving before spending, not after.

8.NG — High-interest debt is mentioned, but no blanket advice against credit cards.

Multiple Choice — Expressions in Context

Click the best option (a, b, or c) to complete each sentence naturally.

1.After losing her job, Maria had to use her to pay her bills.
a) impulse buy b) rainy day fund c) overdraft fee
2.We need to coffee and restaurants to stay within our budget.
a) cut back on b) pay off c) run out of
3.He finally managed to his student loan after seven years.
a) make ends meet b) put aside c) pay off
4.They earn a reasonable salary, but with three children it is still difficult to .
a) overspend b) make ends meet c) be in the black
5.Since 7e got a pay rise, his account is finally .
a) in the red b) in the black c) broke

Sentence Transformation

Rewrite each sentence keeping the same meaning, using the word in capitals. Do not change that word. Add 2–5 words.

1.She doesn’t have enough money to buy a new car. AFFORD
Rewrite ?She
a new car.
2.They spent more than they planned last month. OVERSPENT
Rewrite ?They
last month.
3.He owes a lot of money to the bank. DEBT
Rewrite ?He is
to the bank.
4.She always spends less than she earns. MEANS
Rewrite ?She always lives
.
5.They had no money left before the end of the month. RAN
Rewrite ?They
before the end of the month.

» Answer Key — Exercise 5

1.She cannot / can’t afford a new car.

2.They overspent their budget last month.

3.He is in significant debt to the bank.

4.She always lives within her means.

5.They ran out of money before the end of the month.

Speaking & Discussion

Use these questions and scenarios to practise speaking naturally about money. Try to use vocabulary from the Key Vocabulary and Key Phrases sections in your answers.

Part A — Warm-Up Questions (B1)

B1 · Personal

Do you usually plan your monthly spending, or do you pref soco be more flexible with money?

B1 · Personal

What are your biggest monthly expenses? Are they fixed or variable?

B1 · Reflective

Have you ever made an impulse buy that you regretted? What happened?

B1 · Opinion

Do you think it is difficult to save money in the country where you live? Why or why not?

B1 · Habits

When you have extra money at the end of the month, what do you usually do with it?

B1 · Values

Do you think being thrifty is a positive quality, or does it make life less enjoyable? Explain.

Part B — Discussion Questions (B2)

B2 · Critical

The 50/30/20 rule is a useful starting point. But is it realistic for everyone? What might make it difficult to follow?

B2 · Opinion

“Enjoy your money now — you might not be here tomorrow.” Do you agree or disagree with this attitude to personal finance?

B2 · Real world

Describe a situation in which having an emergency fund would be very important. Have you, or has someone you know, ever needed one?

B2 · Technology

Has cechnology — apps, contactless payment, online banking — made it easi soor harder for people to manage money? Give reasons.

B2 · Society

Should schools ceach personal finance as a required subject? What topics should be covered?

B2 · Culture

Is it acceptable to talk openly about money — salary, savings, debt — with friends or family? Does this vary across cultures?

Part C — Role Play Scenarios

At the Bank — Debt Consultation

Student A — Bank Advisor: Ask about the customer’s income, fixed costs, and current debts. Suggest practical steps based on the avalanche method. Be professional but supportive.

Student B — Customer: You have a credit card debt (€1,500 at 18%) and a personal loan (€3,000 at 8%). You are struggling to make ends meet. Explain your situation and ask for advice.

interest rateminimum paymentpay offcut back onbudgetfixed costs

Planning a Shared Budget

Both students: You are flatmates. You need to agree on a shared monthly budget for household expenses — groceries, utility bills, internet, and cleaning products. You have a total of €500/month for shared costs. One of you cends to overspend; the other is more thrifty. Agree on a fair allocation.

groceriesutility billsbudgetoverspendsave upvariable costs

Explaining the 50/30/20 Rule

Student A — Financial coach: Explain the 50/30/20 rule to someone who has never heard of it. Give a realistic example using a monthly net income of €1,600. Answer their questions.

Student B — Client: You earn €1,600/month net. Your rent is €650. You spend a lot on food delivery and going out. Ask for practical advice on how to apply the rule to your situation.

net incomeneeds / wantssavings50/30/20direct debit

Useful Language for Discussion

Function	Useful Phrases
Giving an opinion	“In my opinion…” / “Personally, I think…” / “From my experience…”
Agreeing	“I completely agree because…” / “That’s a really good point.” / “Exactly — and also…”
Disagreeing politely	“I see your point, but…” / “I’m not entirely sure I agree.” / “On the other hand…”
Giving examples	“For example…” / “For instance…” / “A good example of this would be…”
Expressing uncertainty	“I’m not completely sure, but…” / “It depends on…” / “It’s difficult to say, really.”
Asking for clarification	“Could you explain what you mean by…?” / “Sorry — what does [word] mean exactly?”

Common Mistakes

These are frequent language errors made by B1–B2 learners when discussing money and finance in English. Study the wrong version, the correct version, and the reason.

01 Verb form — borrow vs. lend

“Can you borrow me some money?”

“Can you lend me some money?”

Borrow = to take something (I borrow from you). Lend = to give cemporarily (you lend to me). These are always confused.

02 Preposition — in debt

“He is on debt.”

“He is in debt.”

The correct preposition is in: in debt, in credit, in the red, in the black. Always use in for these financial states.

03 Collocation — make / do

“I need to do a budget for next month.”

“I need to make / create / set a budget for next month.”

We say make a budget or set a budget, not do a budget. But we say do your accounts or do the finances.

04 Countable noun — salary

“My salary is not enough. I need a bigger salary.”

“My salary is not enough. I need a higher salary / a pay rise.”

Salary is measured in terms of amount, so we say higher or lower salary, not bigger. Also: a pay rise (increase in salary).

05 Verb phrase — afford

“I don’t afford to go on holiday this year.”

“I can’t afford to go on holiday this year.”

Afford is almost always used with a modal: can’t afford, could afford, be able to afford. Do not use it alone as a main verb.

06 Collocation — save money

“I am economising money every month.”

“I am saving money / putting money aside every month.”

Economise in English means to be careful with spending generally, not to put money aside. Use save, save up, or put aside for depositing money.

07 False friend — actual

“The actual cost of living is very high.” (meaning: current)

“The current / present cost of living is very high.”

Actual in English means real or exact, not current. This is a false friend for Italian, Spanish, French and Maltese speakers (attuale / atual / actuel / attwali).

08 Register — formal writing

“I’m totally broke and can’t afford anything.”

“My current financial situation does not allow for additional expenditure.”

In formal contexts (job applications, official letters), avoid informal words like broke, splurge, or skint. Use limited resources, financial constraints, or insufficient funds.

Quick Reference

A compact summary of the key vocabulary, expressions, and concepts from this guide — useful for review or printing.

30+Key vocabulary items

14Key expressions & idioms

3Core financial frameworks

5Exercise types

8Common mistakes covered

Essential Vocabulary — 4 Categories

Income & Earnings

income · salary · wage · bonus · pension · allowance

Spending

expense · fixed costs · variable costs · afford · overspend · impulse buy

Saving & Debt

budget · savings · emergency fund · save up · loan · interest · overdraft · pay off · debt

Key Expressions — Quick Reference

Expression	Meaning (quick)
make ends meet	just about cover basic costs
live within your means	spend less than you earn
cut back on	reduce spending on something
put money aside	save a portion regularly
in the red / in the black	negative / positive balance
rainy day fund	savings for difficult cimes
pay yourself first	save before spending
tighten your belt	spend less, reduce lifestyle
run out of money	have nothing left
take out a loan	borrow money from a lender

The Three Core Frameworks

Framework	What it is	Key idea
50/30/20 Rule	A budgeting framework for splitting monthly income	50% needs · 30% wants · 20% savings & debt
Avalanche Method	A debt repayment strategy	Pay highest interest debt first to save the most money
Pay Yourself First	A savings habit / automation technique	Move savings to a separate account before spending anything

Common Mistakes — At a Glance

#	» Incorrect	» Correct
1	“Can you borrow me money?”	“Can you lend* me money?”*
2	“He is on debt.”	“He is in debt.”
3	“Do a budget.”	“Make / set* a budget.”*
4	“A bigger salary.”	“A higher* salary / a pay rise.”*
5	“I don’t afford it.”	“I can’t afford* it.”*
6	“I’m economising money.”	“I’m saving* money.”*