Budgeting
| If you think living on a budget means cutting out all the good things in life, think again. It's still possible to cut down on your spending and go out and enjoy yourself at the same time - it just takes a little planning. Find out how a personal budget will help you make the most of your money and avoid over-commitment. It will also help you plan for the future and negotiate with any people you owe money to. |
With an accurate budget, you'll be able to cut out unnecessary expenses and save money, or stop running up big debts. If you already have debt problems, a budget will show you how much spare cash you have. This will help when you talk to your creditors (those you owe money to), because you'll be able to make realistic offers to pay them back over a period of time.
Calculating your personal budget
A budget planner has headings for different kinds of income and spending, against which you can put your own figures. You'll find several calculators on the internet; choose the one that suits you best.
Financial Services Authority budget calculator (www.moneymadeclear.fsa.gov.uk/tools.aspx?Tool=budget_calculator).
Start by working out what you spend: check recent bank statements, and bills for gas, electricity, telephone, Council Tax, water rates, insurance and similar expenses. Don't forget to include anything you pay by standing order (for example, mortgage or rent payments, loan/hire purchase repayments, or child maintenance).
The next step is to estimate what you spend on everyday items (for example, food, clothes, petrol, pet food and newspapers).
Finally, include estimated amounts for unexpected and occasional costs (for example, Christmas and birthday presents, car and household repairs, dentist and optician bills, holidays and outings).
Work out the total outgoings for a full year and divide by 52 or 12 to get a figure for each week or month.
Next list all of your income:
check your payslips to get an accurate figure for wages;
look at statements for benefits, Child Tax Credit and similar income;
include rent from lodgers.
You should average out any irregular income and ignore one-off or uncertain amounts.
Work out your total income for a week or a month, then take away the expenditure to work out whether you have any spare money, or whether you're over-committed.
If you've got a bank account, take a look at the Direct Debits coming out of it every month. You may be spending money on a gym that you haven't been to in three months. You might also be subscribing to a magazine that you don't really read much. If you do find some, you can cancel them by contacting your bank.
Direct Debits can also save you money. Many companies, such as mobile phone providers charge you extra if you don't pay by direct debit because of the extra paperwork and administration costs. If you do make regular payments, contact the relevant company to see if switching to Direct Debit can get you a discount.
Cutting down on entertainment expenses
Many people just cut out entertaining and socialising costs altogether when they're looking at what they're spending each month. Although this suits some people, it might be a good idea to think about whether you're the kind of person who'll go out on a spending spree as soon as you do make cuts to your budget.
To spend less on entertainment, try to think of cheaper alternatives. For example, instead of going out for something to eat and then to the cinema, how about inviting friends over and hiring out a DVD? You'll be surprised how much you can save.
If you're at a loose end, it's probably not a good idea to go window shopping, as you might end up buying something. Why not try doing something you may never have done before, like visiting a museum or art gallery.
What to do with your leftovers
If you've got some spare cash at the end of the month then your budget is obviously working. To make the most of this money, the best idea is to put it into a savings account. There are a number of different accounts and schemes available.
The best option for you depends on the how long you want to save for and how often you want to gain access to your money.
Once you've put enough money into your savings account, you could treat yourself to a holiday or replace your old CD player with a top of the range digital sound system. You can also start putting money aside for the future and get yourself into the savings habit.