Most people at some point in their life will have to tackle events that may, unfortunately, trigger money worries. This can be a reduction in work hours, long-term or short-term illness’ or even big life changes like starting a family can easily put a strain on finances.
Making a Monthly Budget
Making a budget plan can help you identify key arrears in which you may be overspending. Done correctly, it is a very precise tool to help you analyse your finances.
What is a Budget Plan?
A budget is a list of all the money you receive and all the spend every month. Making a budget plan will allow you to prioritize and focus your spending on the things that matter the most to you. This will also make sure you’ve covered all the things you need to pay each month.
What Do You Include in a Budget Plan?
It is important to remember that a budget plan should be based on your monthly household income and expenditure. As the majority of your bills and debts will be paid monthly, this will give you a clearer understanding of the financial situation. When completing your budget, if you live with a partner you may wish to include their income into your plan.
If your budget is for the purpose of managing debts, your creditors are likely to expect the income and debts of a couple to be dealt with together. Although there is no basis in law for this expectation. However, finances can’t often be separated in which case you will need to sit and do this together. Although, this decision rests with you and what you feel is within your best interests.
So, What Income Do You Need to Include in Your Budget?
> All benefits and Tax Credits and Housing Benefit (You may not wish to factor in any Disability Living Allowance, Personal Independence Allowance and Attendance Allowance into your income. Usually, the disability benefit is to be offset in areas such as mobility or care costs)
> Earnings – i.e. net pay from full-time or part-time work
> Self Employed earnings – net income after expenses and national insurance contributions
> Regular Child Maintenance Child
> Investment Income – ie from savings
> Contributions from other household members – ie adult living at home and contributing board and lodgings
> Occupational and other Pensions
If some of your income is paid weekly, you’ll need to turn these figures into calendar monthly ones. To do this you need to multiply the weekly figure by 52 and then divide this by 12. This will then give you the calendar monthly figure to include in your budget. It is also important to ensure you are benefiting from a ‘Maximum Income’. In which, if you have further benefit entitlement that all avenues for a claim have been explored. Money Support Group will be able to help you check you are receiving your full entitlement for benefits if you wish to discuss this further.
What Do You Include in Your Expenditure?
Your expenditure is a list of everything you spend each month. You may also wish to include amounts for things that you pay annually or less often. Such as Christmas, car repairs, or vet bills. To do this you need to divide the yearly cost by 12 to give you a monthly figure. Doing a budget planner accurately can take some time. To help you along the way and to get a more accurate figure of your monthly outgoings, we suggest you look through documents such as; Bank Statements, Receipts, and Credit Card Statements. This will show you where you are really spending your money.
Priority Bills Include:
Your household bills are the most important expenses and must be accounted for. Missing payments could have huge consequences. For example, being behind on your rent could lead to an eviction notice from your landlord or local housing.
> Rent, Mortgage and Secured Loans
> Council Tax (remember this is usually paid over 10months, to make this accurate you need to divide
your total annual cost by 12)
> Gas & Electric
> Water Rates (unless included into rent)
> TV License
> Service Charge or Ground Rent
> Hire Purchase Agreements, logbook loans
> County Court Judgements
> Court Fines
> Child Maintenance
Arrears on any of the bills listed above
These bills are still important but not necessarily to the same extent as your priority bills
> Car Insurance, tax or breakdown cover
> Satellite and Cable TV
> Building and Contents Insurance & Life Insurance
> Telephone and Internet
> Public Transport
> Repairs to housing
> Medical, Health Care Costs
> Household goods on rental
> Educational Fees
> Union or Professional Fees
> Laundry and Dry Cleaning
> Loans from family and friends
These are typical costs you will spend day-to-day. There are guidelines that are set out so that you have a minimum amount set out for each area to cover the below. It is important to note however that excessive amounts of spending on non-essential areas may be asked to be reduced by your creditors.
> Food costs for you and family
> Clothing and Footwear
> Dentist and Optical
> Sundries and Emergencies
> Medicines and Prescriptions
> Sports, Hobbies and Entertainment
> Newspapers or Magazines
> School Activates & Trips
> Petrol & Parking Costs
Finally, you will need to list your debts and the payment you are currently expected to repay each month.
> Unsecured Loans
> Credit Cards
> Store Cards
> Payday Loans
> Catalogue Repayments
> Doorstep Loans (such as provident)
> Cancelled contracts (phone bills, satellite & gym memberships)
> Arrears for Gas and Electricity
> Arrears from previous rental properties
> Debts to HMRC or DWP (could include overpayment of benefits)
REMEMBER, be as accurate as possible. A budget planner can sometimes miss areas that contribute majorly to your overall spending habits. This will then make your budget worthless! Do not underestimate your monthly spending, it is always beneficial to increase areas you may be unsure of in your expenditure.
The End Result
The moment of truth. You now need to deduct the total amount you spend each month from your monthly income. If you have got any money left over after you’ve paid everything, this is called a ‘budget surplus’.
If you’re spending more money than you’ve got coming in, you have a ‘budget deficit’. It is always surprising to see what you spend your money on. And also, areas in which you may be overspending.
The key thing in your budget planner is that you have been as honest as can be. There are always ways to save; are you getting the best value for your money? Can you cut costs? Are your debts becoming unmanageable?
Our dedicated advisors at Money Support Group can discuss ways of helping you manage your finances bringing your outcome into a surplus.
What To Do if You Have a Deficit Budget
If you have calculated your monthly budget and found you are spending more than you’re earning each month – it may be an idea to get in touch with us at Money Support Group to discuss your options.
There are ways out of debt and you are not alone! Call us today at 0800 088 2303 or alternatively, click the button below to request a callback and get the help which you need.
For more advice Try Our Debt Free Calculator