This financial pressure has often proved too much and has consequently meant that many have lost control of their finances, missing important payments and turning to short term finance such as payday loans or credit cards as short term fixes.
Sometimes financial trouble is unavoidable; however in many cases it can be dodged by simply implementing a basic household budget, this is our guide to creating an effective budget:
1. Calculate your debt
This is the stage at which many bury their head in the sand in order to avoid facing the extent of their debt. It is in fact important that you are honest with yourself and note down exactly how much you owe, the monthly repayments and the source of the debt.
Ensure you take into account any credit or store cards you own, bank accounts with overdrafts and loans. Although the figure you are left with may be a surprise at first; this will be the highest it will ever get.
2. Prioritise Debt
Now that you know exactly how much you owe and who you oweit to;it’s time to prioritise which debts to settle first. A good idea would be to set about paying off the debt which comes at the highest rates of interest, which will often be credit card and store card debt.
It is important that you look to settle the highest interest debt first because by letting this continue to mount it can hurt you in the future.
Now it’s time to create your budget. Firstly, collate all the financial data you can such as your bank statements, wage slips, utility bills and any other data that may show sources of income and outgoings. Next you need to add up all of your income including your main wage along with any benefits or other sources of income you may receive. Do this for 3 months’ worth of income and then take an average.
Now do the same for your monthly outgoings, total up your mortgage or rent payments, loans, insurance, council tax, utilities, internet, telephone and TV License. You may also want to include variable outgoings such as clothing costs, weekly groceries shop,fuel/ transport costs, entertainment and gifts. Take an average of your outgoings and then subtract this from your income figure, the number you are left with is your disposable income. If this figure is positive then that’s a great start, if its negative then you need to make some adjustments to your budget promptly.
4. Make Adjustments to your Budget
In order to increase your disposable income you need to either increase your monthly income or decrease your outgoings. While a pay-rise may be feasible it is often unrealistic, therefore the you need to reassess your outgoings.
The easiest place to make cuts is on your variable outgoings, here are some of the most common areas to save money:
Groceries: Try shopping online as opposed to in store, this eradicates the temptation of impulse buys and makes it easier to identify special offers.
Entertainment: simply cutting the amount of times you go out each month by half could save you £100s each month.
Fuel/ Transport: Drive more economically; using public transport and comparing petrol prices are all ways to decrease your transport costs.
You may also be able save on your fixed outgoings such as utilities, data (e.g. call, broadband and tv) and car insurance by using comparison websites and switching providers whenever necessary. However this will require time and effort on your part.
5. Set Goals
Setting realistic goals not only gives you something to aim for but it offers motivation. If you have large amounts of credit and store card debt then a good goal would be to pay off this debt. Other popular goals are saving for your retirement, saving to buy a house to building an emergency fund. The financial goal that suits you best will depend on your financial status, it’s important that you remain realistic but be ambitious at the same time.
6. Be Financially Disciplined
It is important that you stick to your revised budget and don’t be tempted to splash out on lavish and unnecessary purchases. Ensure that you do not apply for any further credit until you feel you are in control of your current debt.