Debt Help - Budgeting Tips
Reasons You Should Budget
- Budgeting gives you a clear picture of what your financial situation is. It usually demonstrates that money is not being spent according to your priorities, and it will highlight where changes should be made in your spending habits. It should also show where savings could be made.
- Budgeting can make your money go a lot further. The main goal of budgeting is to make sure that all your basic needs are met. It also should show you a pathway to getting out of debt.
- Budgeting can help you curve impulse spending.
- Budgeting can help prevent you running up debts to the point where contractual payments can no longer be maintained.
- Budgeting helps reduce the general level of stress in your household.
In order to begin budgeting, you must first take a long hard look at your standard of living. Advertisers constantly tell us that we should live for today, while giving no thought as to the future. If you find yourself following this route, then you expose yourself to major risks. This is particularly true if you are using credit as a means of financing your lifestyle.
As a lot of people are finding out these days, no job is guaranteed for life. When evaluating your budget, you should also take in to consideration what would happen were your circumstances to take a dramatic turn for the worse. You should develop some sort of cushion in order to cope with any negative changes that might come about in the next few years. It is always best to be prepared.
When budgeting, you should always set out your financial goals. These might include such things as a savings account for your children, pensions, and more. You should then prioritize these things and try to figure out how long it will take for you to realize these goals. You should keep in mind that these goals will not be achievable immediately. But that does not mean you should not start planning for them right away.
In the event that your financial situation is starting to get out of your control, then you should start buying everything on a cash only basis. Whenever you consider buying something that is not essential, you should ask yourself if it is something that you really need, or merely something that you want.
Preparing a Personal Budget
If you want to maintain strict control of your finances and get a better idea of what your financial problems may be, it is essential to prepare a personal budget.
Step 1 - Start with the reality of your current situation
You should keep a strict record of everything you spend money on in order to get a clear picture of your monthly expenditures. Make a conservative estimate of your yearly income. Divide that figure by twelve in order to get a monthly figure. You should also work out expenses that do not occur every single month – this might include vet bills, insurance, car repairs, and holidays. You should estimate about how much you spend on these things each year, and then divide that figure by twelve in order to determine the monthly costs.
Step 2 - Complete a monthly budget
This data will give you a clear picture of what should be included on your monthly budget.
| Monthly Income | ||
| Your basic salary = £ | ||
| Partner's basic salary = £ | ||
| Guaranteed overtime = £ | ||
| Pensions = £ | ||
| Child Benefit = £ | ||
| Income Support = £ | ||
| Tax Credit = £ | ||
| Other benefits = £ | ||
| Maintenance = £ | ||
| TOTAL INCOME £ | ||
| MONTHLY EXPENDITURE: | ||
| Commitments | Everyday Spending | Occasional |
| Mortgage / Rent | Food & sundries | Christmas |
| Water | Pocket money | Birthdays |
| Ground rent | Childminder | Holidays |
| Service charge | Toys & books | Car repairs |
| Council tax | Pet food | House repairs |
| Property insurance | Laundry | Decorating |
| Contents insurance | Chemist | Replacement |
| Electricity | Parking | Furniture |
| Gas | Public transport | Vet bills |
| Oil | TV rental | Clothing |
| Telephone | Video rental | Dentist |
| TV licence | Evening classes | Opticians |
| Car MOT | CD's | Trips/outings |
| Road tax | Alcohol | Meals out |
| Vehicle insurance | Cigarettes | Other.... |
| Personal insurance | Newspapers | |
| Private pension | Magazines | |
| Maintenance payments | Petrol Other | |
| Second mortgage | Others.... | |
| Loan repayments | ||
| HP repayments | ||
| Credit card payments | ||
| School fees | ||
| Other | ||
| Total Commitments £ |
Everyday £ |
Occasional £ |
Total Monthly Expenditure: |
||
| Total commitments | £ | |
| Total everyday spending | £ | |
| Total occasional | £ | |
| Grand total | £ | |
| Balance: | ||
| Monthly Income | £ | |
| Monthly Expenditure | £ | |
| Monthly surplus/deficit | £ | |
In the event that the difference between your income and your expenditure is a positive amount, that means you have a budget surplus and you should have enough money left over to pay towards your unsecured creditors. In the event, however, that you have more expenditure than income, then that means you have a budget deficit. This means that you need to make changes to your spending habits in order to find the necessary funds to pay your unsecured creditors.
Step 3 - Evaluate and reduce your spending
In the event that you have maximized your household income, then the only alternative solution is to reduce your spending. In order to do this, you must first take a good look at your expenses. Then, ask yourself the following questions for each category:
- Is this category really necessary?
- If not, can I do without it?
- If not, can I substantially reduce my spending?
Once you have succeeded in identifying those areas where major reductions could be made, you should start thinking of ways of achieving this goal. Below, you will find some ideas for getting started on this:
- Housing: Look for DIY opportunities. Shop carefully for furniture and appliances. When possible, take advantage of sales.
- Transport: Try to use just one car and perform the routine maintenance on it yourself. Try to use public transportation more often, where possible.
- Utility Bills: Make sure you are using the cheapest available supplier for electricity and gas.
- Food: Prepare packed lunches for school and work. When you do purchase food, make a list beforehand – and stick to it. Try to use coupons wherever possible.
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