What is a Budget
A budget is not rocket science. It’s just a plan regarding the money you intend to receive and how you expect to distribute it.
Preparing a budget is vital because it will identify the following
o The amount of money coming into your household
o The amount of money going out of your household
o The amount of money you can afford to offer your creditors. (those you owe money to)
o Help to plan your future spending efficiently
How to work out a personal Budget.
To work out a personal Budget the following questions need to be answered
o How much is my total weeklymonthly household income
o How much is my total weeklymonthly household expenditure
o How much is left over
Once you have this information it will form the foundation of your Budget. The information needs to be broken down onto a personal budget sheet. An example of how to do this and a down loadable version of a personal budget sheet can be found in my book – Debt Relief the Definitive Guide
IMPORTANT Remember either weekly or monthly figures need to be inputted in the budget sheet depending on the frequency of your income. Do not mix weekly and monthly income figures as this will distort the accuracy of the final figures you need to work on.
To work out a weekly payment on a monthly basis, simply multiply the weekly payment by 52 and divide by 12.
How to work out your income.
When adding up your household income you must include the following
o Salary and wages AFTER tax and deductions. DO NOT include overtime and bonuses unless they are regular.
o Check that you are being taxed correctly and you are claiming for all of your entitled tax allowances. You can do this by contacting your local and regional tax office. You should easily find their numbers on-line. Google search for your local tax office.
o Include social welfare benefits and child allowance payments.
o If you have (non Dependants) living in your home. E.g. grown up children or you may be renting a room, make sure that they are all contributing to the household expenses and include these figures in your income.
o If your income is low check with your local social welfare or citizens advice center. You may be entitled to money which you are not claiming for such as Living Alone Allowance, Family Income Supplement etc
o If you are disabled or sick, you may be entitled to claim for a range of benefits, again, check with your local social welfare or citizens advice center.
How to work out your expenditure.
Sit down with everyone in your household and work out how much you need to spend on basic household expenses each week. You can download a spending diary that will help you do this quickly and easily from my book – Debt Relief the Definitive Guide
When working out your household expenses DO NOT include debt, arrears or loan repayments but DO include the following
o Mortgage repayments
o Rent
o Housekeeping items such as; food, toiletries, cleaning materials etc.
o Electricity and Gas. If you are billed monthly, look at your last 3 monthly bills add them together then divide by 3 to get an average monthly bill amount. To get a weekly figure, just multiply the average monthly bill amount by twelve then divide it by 52. If your bills come every two months then take your last bill amount, multiply it by 6 then divide it by 12 for a monthly figure. For a weekly figure multiply by the bill amount by 6 then divide it by 52. You can also shop around for cheaper electricity and gas service suppliers.
o T.V. License. Divide the total by 12 for a monthly amount or by 52 for a weekly amount.
o Hire Purchase car loans, if you require the car for work and you bought the car utilizing a hire purchase agreement, you must include the repayments in your expenditure because you may lose your car if you fail to keep up the repayments.
o Clothing. Don’t forget to include school uniforms if you have children.
o Telephone; Only include your ongoing bill. If you have been disconnected then treat this as an unsecured debt.
IMPORTANT This is YOUR budget. Your outgoings and expenditure may be as a result of your own unique circumstances. E.g. special dietary needs, transport costs if you live far from your place of work etc so you must ensure these figures are your own. Remember, if you don’t take into account ALL of your expenses you will find it difficult to stick to any long term repayment plan.
The next step is to complete your personal budget sheet by inputting all of the income and expenditure details you have collected as above. This sheet will give you a clear and concise picture of your overall financial situation.
The next step is to complete a Financial Statement using the information from your personal budget sheet. An example of how to do this and a down loadable version of a Financial Statement can be found in my book – Debt Relief the Definitive Guide it comes with a detailed step by step guide as to how and where to input all of the information then how to calculate the figures accurately. This statement will identify how much you have to offer your creditors. If you find that your expenditure exceeds your income, see if you can reduce your expenditure in certain areas.
If you need to right to your creditors and show them your income and expenditure before they will agree a payment with you, the best sheet to accompany the letter would be a Standard Financial Statement. An example of how to do this and a down loadable version of a Standard Financial Statement can be found in my book – Debt Relief the Definitive Guide it comes with a detailed step by step guide as to how and where to input all of the information then how to calculate the figures accurately.
How to maximise your income.
We can get into debt because there is usually too much monthweek at the end of our money in other words, there is more money going out than what is coming in. Sometimes we do not always recieve all the money we are entitled to. Therefore, see below for options that may be open to you for increasing your income
o Tax; your local tax office will advise you about credits you are entitled to with regard to your own personal situation.
o Social Welfare; Your local Citizens advice center can help you check that you are claiming for everything that you are entitled to whether you are working or not. You might like to check your local governments website for the links to the relevant departments that provide information on these topics.
o Insurance; Check if you have payment protection insurance on your loans and or mortgages. You may be entitled to make a claim.
o Employment; You can check various legal provisions on wages, dismissal, equality and redundancy. Your local Citizens advice center can advise you in this regard.
o Welfare Funds; some large employers can assist employees (or past employees) with certain schemes they may have in place for those in financial difficulty. You can also check for volunteer and local community groups who may be able to assist.
o Take a second job; you might want to consider working a second job outside of your main job in the evenings or at weekends to maximize your income.
o Start a small business from home; the internet offers an abundance of information and ideas about starting your own online business. You need to be careful who you get involved with though and in some cases the cost can be minimal or next to nothing to get your business up and running. A good starting point would be here.
o Rent a room in your home; You can earn, in some cases, tax free income by renting a room out in your house. Check your local tax office online for tax breaks if you earn extra income by renting a room in your home.
Reduce your outgoings to maximize your income; Try and workout certain areas of your spending that you can cut back on and save. Start with your personal budget sheet in front of you and do the following
Highlight the outgoings that cannot be changed. E.g. Rent. If you have a mortgage try shopping around for a cheaper mortgage rate. A good start would be talking with a mortgage broker as they would have access to all the major lenders and can do the shopping around for you.
Highlight bills or payments that could be reduced. E.g. Gas, Electricity, Telephone. Now look at your weekly essential expenses, like groceries, housekeeping, clothing etc. A weekly spending diary can help here to give you an idea as to where you might be able to save. Also try to shop around for cheaper grocery stores and cheaper brands etc.
IMPORTANT This is YOUR income. Remember, if you don’t take into account ALL of your income and try to maximize it where you can, you will find it difficult to stick to any long term repayment plan.
Staying in Control – Your To Do List
o Make a list of all your debts on a piece of paper.
o Highlight the Debts that require your immediate attention
o Write and make contact with everyone you owe money to IMMEDIATELY.
o Prepare a personal budget sheet. Either make one yourself or download one from my book.
o Be as accurate as you can when preparing your budget.
o Complete a spending diary for a couple of weeks.
o Check for your social welfare entitlements
o Check that your income tax affairs are up to date and you are maximizing all of your tax credits.
o Subtract your expenses from your income to establish what you can afford to pay your creditors.
Getting back on top of money issues does have its difficulties. This path is designed to help you manage these difficulties, overcome them and gain control of the situation. All of the recommendations in this plan are free for you to adopt. They will however, necessitate an investment of your time and will require you to take ACTION. These problems will not go away and will become harder for you to get under control the longer you let things drags on. Take action NOW and get your life back.
If you want the more in-depth Definitive Guide to Managing Your money with letter templates for you to download along with weekly budgeting planners and financial planning tools for you to download, then visit my Blog. the link can be found below.
I hope this article helps you in your quest towards managing your money. I would very much welcome your comments and if you have any questions please feel free to ask. You can contact me and comment on any of my articles on my blog. I will answer any questions you may have as promptly as possible. You can also follow me on Twitter or find me on facebook. You can find the links below.
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