Managing your finances: A guide to budgeting
Working out a monthly or weekly budget means you have a much clearer idea of how much money is coming in and going out. This can be the difference between gradually falling further into debt and managing to make your repayments.
If you’ve never drawn up a budget before, it can feel like a real challenge the first time you do it. The idea of counting every penny, and never spending more than you can afford, can even be quite off-putting; especially if you’re not in the habit of managing your money this way.
But, having a clear household budget gives you more freedom than ever. It helps you avoid those parts of the month where you’re flat broke and can’t go anywhere, or where you risk falling into unnecessary debt, because an unexpected bill catches you out.
So how do you create a budget that actually works? We’ve written this simple guide to help you get started.
Have the right tools
Don’t worry, you won’t need spreadsheets or complicated algorithms. A budget can be simply drawn up on a piece of paper, although it helps if you have recent bank statements and bills handy, so you don’t miss anything out.
There are even online budgeting tools available, which are good because they’ll remind you of different household bills to include. This free budget planner from the Money Advice Service as it shows you a clear breakdown of your outgoings.
However you decide to work out your budget, make sure you set aside enough time to do it without any distractions. Get it right from the start and you’ll save time and energy in the long run.
Work out your income
Employees usually find this fairly easy to do; you just need a few payslips. However, if you’re self-employed, or work more than one job, or have a zero-hours contract, it can be harder. Gather as much information as you can before you begin, so you can work out your usual income more clearly.
Don’t forget to factor in payments like Child Tax Credit, so that you have a clearer idea of what’s coming in.
Work out your outgoings
First, list all the essential monthly bills – these are your priority payments and will include your rent or mortgage, council tax and utilities. Your bank statements or copies of those bills might be essential for these.
After that, list down personal bills like debt repayments, mobile phone charges, transport and entertainment packages. You will also need to consider what a realistic amount is that you need to spend on groceries and clothing each month.
Once you’ve done that, you should have a clearer idea of how much you have left as disposable income. If you’ve been falling into debt then there’s a good chance it won’t be as much as you thought.
If you’re regularly spending more than you earn, you risk gradually spiralling further and further into debt, until it becomes a real problem. It also means that repayments eat away at the disposable income that you do have, which is why getting back in control of your spending as early as you can is so important.
What if it just won’t work?
Some people will draw up a budget and realise that they simply can’t balance the books. If that’s you, the first thing to do is work out where you can cut back; perhaps by switching energy providers or banks, or cutting out some of the more discretionary spending like entertainment.
After that, you may want to look at ways to increase your income, perhaps by taking in a lodger or checking you’re receiving all the benefits to which you’re entitled.
But if increasing your income isn’t an option and your debt repayments are out of control then maybe it’s time to talk to a debt advice expert.
Get some help
If you’re in debt but you’ve been burying your head in the sand when it comes to repayments, making a budget can really bring that home. There’s a chance you’ve written down your income and outgoings, and now you realise you simply can’t make the two work, because your repayments are so high.
Don’t panic if that’s the case, treat it as a warning that you need to act. If you’re struggling with unmanageable debt then the sooner you take action, the more choices you have.
At PayPlan we can offer free debt advice with no hidden fees. Our advisers are experienced and understanding, so you don’t need to worry about feeling judged or criticised.
Call us today to discuss your debts and see if we can help. Our number is 0800 280 2816, or you can request a call-back via our debt help form.