How to budget and manage your money…
Posted on: Wednesday, September 21, 2011
by admin
So you think you could do with a few tips on how to manage your money? In this article we discuss money management techniques that will allow you to save more and pay your debt off faster.
How to budget and manage your money…
In today’s society it is so easy to spend money…many financial institutions send you marketing mailers every week promoting their new latest offer and it is not surprising why some people spiral into a ‘debt hole’ and cannot get back out.
Therefore, we advise all our clients to do one thing, before going for another credit card, before buying a new TV or sofa, consider the following points:
- Do I actually need it?
- Is it the best price I can get for the product?
- Once I have purchased it and buy it on finance - can I afford the repayments and is the rate of interest competitive?
There are many budget planners on the internet which you can use, but you can easily produce your own spreadsheet or table with a list of your income and a list of your outcome and then calculating the difference. Before you start you will need to gather the following information to really produce a detailed plan:
- All your credit card statements
- All your bank statements
- Essential item receipts i.e. food bills
- Your pay slips
Highlight the costs which are ‘committed’ i.e. you have to pay per month like your rent or mortgage and those which are set up on your account as a direct debit or standing order. For essential costs, like food, collate all your receipts for a relatively long period of time i.e. 3 months/12 weeks and do a weekly average so you have a good idea of your ‘actual weekly’ spend. If your weekly/monthly salary actually fluctuates due to commission or seasonal payments then we also recommend you calculate your monthly average salary so you can work out if you can actually cover all your normal costs.
If you do not have a budget planner now, then doing this exercise will give you an accurate idea of the size and scale of the problem. It also allows you to understand how all the ‘little costs’ which you may not normally consider could add together to build a big problem.
You also need to consider the interest charges that you are being charged on the levels of debt you currently have and also the seasonal costs which will alter your budget in a particular month. For example, in December your spend will increase due to your Christmas present buying, July may increase because you know you have a holiday and need spends etc.
If you realise that you spend more than you earn you really need to decide on which costs can be reduced and/or prioritised to ensure you keep within your means. You may also consider selling some of your assets, for example, your car or an old table and chairs to try and generate extra cash to pay off your debts and reduce your daily costs. The increase in petrol alone has made many people consider public transport more than ever. Listing all your costs will also help you understand the actual costs of things and how they can build up to more than you realise.
Some of our clients have actually completed this exercise and by cutting out the daily coffee (£2.50), the daily newspaper (80p) and buying their daily lunch from a sandwich shop (£3.50) has meant they have reduced their monthly costs and actually allowed them to spend more on paying their debts. Cutting out the above would save them £1564 a year*.
In situations where you are really struggling and cannot cover your costs or debts, we can help you establish the most appropriate solution such as a debt management plan or an Individual Voluntary Arrangement , just contact us.
In conclusion, don’t be someone who continues to borrow to fill the gap of your overspend as in time more of your income will go to repay debts and if it continues, all your income will go towards paying debt – which could make you insolvent/bankrupt. Take action now and plan how you can live in your means.
*This figure has been generated with the following assumptions – 46 working weeks, therefore 230 working days and if the person bought those products on a daily basis.