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Debt Help - Budgeting Tips
How to set a budget and save money. Practical Advice and Information for UK Residents with Debt Problems.
Reasons You Should Budget
- Budgeting gives an accurate picture of your financial position. It will almost certainly demonstrate that money is not being spent according to the priorities and will highlight where changes in spending habits can be made and, possibly, where savings can be made.
- Budgeting also helps make money go further. The fundamental aim of budgeting is to ensure that basic needs are met and that, where necessary, steps are taken to get you out of debt.
- A budget can be a very effective brake on large impulse spending.
- Budgeting can help prevent the running up of debts to the point where contractual payments can no longer be maintained.
- It will help to reduce stress levels.
Evaluate your standard of living. Advertisers are constantly telling us that, as consumers, we should happily gratify ourselves today with no thought of tomorrow. Following this route exposes you to enormous risks, particularly if you use credit to finance your standard of living.
As millions of people have eventually found out to their cost, there are no longer many, if any, guaranteed jobs for life. When evaluating how you live you need to think about what you would do if your circumstances changed dramatically.
Develop some form of cushion to help cope with a negative change in circumstances rather than spending to the limit.
Set out your financial goals - these may include such things as a pension, savings accounts for the children, etc. Then prioritise these and try to establish how long it will take to reach these goals. Bear in mind that all your goals will not be achievable immediately, but you may need to start planning for them now.
If you feel your situation is spiralling out of control, start to buy everything on a cash basis.
When you are thinking of buying something that is non-essential ask yourself whether it is something you or your family really need or whether it is something you just want.
Preparing a Personal Budget
Having a budget that details all your income and expenditure will help you to maintain control of your finances and, if necessary, help to illustrate the problems you may be having to your creditors.
Step 1 - Start with the reality of your current situation
Keep a record of everything you spend money on to complete an accurate picture of your monthly expenditure.
Make a conservative estimate of your annual income and divide it by 12 to get a monthly figure.
You also need to work out expenses that do not necessarily occur every month, such as insurance, holidays, car repairs, vet bills etc. Estimate how much you spend on these each year and then divide by 12 to determine your monthly cost.
Step 2 - Complete a monthly budget
The information below will give you a good idea of what needs to be included.
| 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 | £ | |
If the difference between your income and expenditure is a positive amount, you have a budget surplus and have money to pay towards your unsecured creditors. If, however, you have more expenditure than income, you have a budget deficit and will need to make changes to your spending habits to find money to pay your unsecured creditors.
Step 3 - Evaluate and reduce your spending
If you have maximised your household income, the only alternative solution to increasing you budget surplus is to reduce your spending.
The first thing to do is look at your expenses. Ask yourself the following 3 questions for each category:
- Is this category absolutely necessary?
- If not can we do with out it?
- If not can we substantially reduce our spending?
Once you have identified the areas where substantial reductions can be made, you will need to think of ways to actually achieve your goal. Below is a list of ideas to help you get started:
- Housing - look for DIY opportunities and shop carefully for furniture and appliances. Take advantage of genuine sales wherever possible.
- Transport - do what you can to use one car and perform routine maintenance yourself. If you are going to town try to use public transport.
- Utility Bills - make sure you are with the cheapest supplier for gas and electricity. Compare prices and switch online to get your best deal with sites such as Uswitch
- Food - prepare packed lunches for work and school. When purchasing food prepare a list and stick to it. Try to use money off coupons from papers and magazines where possible.
- Clothing - plan your spending in advance and do not over purchase.
- Insurance - shop around for the best deal and make sure you only get the cover your family really needs.
- Entertainment/Recreation - draw up a list of things you and your family can do in the vicinity of your home that are cheap or completely free. Try to stick to a limit on spending money and holidays and book accordingly.
- Savings - open a separate savings account where you can deposit the required monthly allowance for bills that do not fall due on a regular monthly basis or to deposit monthly amounts to help save for a holiday etc.
Disclaimer: This material is for general information only. You should not rely on this information to make any decisions. Call us for professional advice for your own particular situation.
See also Abccus Finance: Secured Consolidation Loan for more information on how to tackle problem debts.