How to Budget

Budgeting can help you take control of your spending and make sure you always have enough money for the things you need to spend it on. Doing a budget is a really good way of looking at where your money goes.

Take a look at the tips on “Be S.M.A.R.T for 2008” below.

You could run a weekly or monthly budget depending on how frequently your income is paid, or a combination of the two.

Whether you receive a salary or benefits & pensions, you can still run a successful budget.

Some people prefer to pay regular bills by monthly or weekly instalments either by direct debit or payment cards. Others prefer to save a regular amount so that bills can be paid quarterly (gas, electric, water) or yearly – motor & home insurances, TV licence, car tax.

Use the facilities that your bank account may offer to help you budget, such as free internet banking or telephone banking to check your bank account regularly.

You also need to keep track of any cash withdrawals to help you keep to the spending limits you set yourself.

Remember, the small amounts count-

Daily spend on coffee & a muffin - £2.50 = yearly spend of £648!!!!!!!!!! 

Here’s a simple plan to get you started:

Step One: Total Income

Most people find it easier to work on a monthly budget. This means that you calculating a monthly figure for any income that you receive weekly, fortnightly or 4 weekly:

• Weekly figure received: multiple by 52 (weeks per year) and then divide by 12 (months in the year)

• Fortnightly: multiply by 26 (fortnights per year) and divide by 12 (months in the year).

• 4 weekly: multiply by 13 (there are 13 payments of 4 weekly income per year) and divide by 12.

Budgeting on a calendar monthly basis helps as most payments for priorities or creditors are monthly. It also means you are considering every single cost over a full 52 week year.

Step Two: Total Expenses

Some costs will be monthly – mortgage/rent, utilities, etc and some may be quarterly or half yearly costs – TV licence, car tax, insurance on household goods or breakdown cover for boilers/leaks.

Some will be weekly and are more likely to be the items that you buy with cash, or on a debit/switch card or cheque (food, petrol etc.)

You also need to include a monthly figure for clothing and any savings you need for birthdays /Christmas or towards emergencies like car or house repairs. It may be easier to work out what you need to spend over a year, and then divide that figure by 12.

Your budget must be updated if you get a pay rise, or if your costs increase, like mortgage & rent increases, utility bills and insurance.

Hopefully, your income will exceed your expenses and you will have a surplus, meaning you can afford to cover all your costs without using any credit for day to day living costs.

*********** If not, you should take immediate action to ensure that your priorities are covered (housing costs, utilities, TV licence, car tax & insurance) by reducing any unnecessary expenses, such as leisure, sky TV and any high spending on clothes, tobacco etc.

You can also look at reducing your spending on priorities where possible ***********

If you have outstanding credit debts – loans, credit cards, store cards, catalogues, car finance or HP, deduct the total monthly cost of your credit repayments from your surplus.

************* If your expenses already exceed your income before you add up your credit debts , or the credit debt payments take you into a deficit, you should take the steps to try and reduce your costs but also need further advice to help deal with your credit debts *********** contact CCCS immediately.

Step Three: How to use your budget

There may be some items that you pay for during the year but not necessarily every month or every week.

Once you have identified how much you need to budget for these items, you should set aside a monthly figure from your budget.

Two possible methods of doing this are:

Separate & Save

Take the monthly figure you need and transfer it to a savings account.

You could choose a savings account linked to your bank account, so you can transfer amounts back and forth, or an instant access savings account with a cash card/pass book for withdrawals.

 You could use one savings account for all your budget items, or have separate ones for each item (car, clothing, Christmas).

By using the money in the savings account only when one of these items is required means you will always have the money available.

Example:

Jan       - £25 set aside for clothing

 - £20 spent = £5 left in savings account

Feb      - £25 set aside, plus £5 left over from January = £30 available to spend

Building & Balancing

Same theory as Separate & Save, but the monthly budget amount you have calculated stays in your bank account. So over the year you build up a large figure in your bank account BUT with this method you have to remember only to spend the money on what you have budgeted for.

Both of these methods require willpower and require you to take responsibility for your own spending habits.

******** By opening a savings account and bank account with a good interest rate – many accounts start paying interest on balances as low as £1, you could earn some extra interest over the year. ***************

Some people find it useful to keep a record of spending – either on paper or using a spreadsheet or even your mobile phone.

It is also necessary to look at your day to day spending. Try to limit visits to the cash point, or keep a record of your switch/debit card transactions.

If you have a budget of £35 per week for food & housekeeping, £10 for meals at work and £25 per week for travel, try only withdrawing £70 for the week.

You may find that by having contact with actual cash, you are able to spend less than you normally would. So if you have £15 left at the end of the week, you could either have a guilt-free spend, or put it aside for later in the month or into savings.

Visit the Message Boards  to share your budgeting experiences and give us your tips.

Can you be S.M.A.R.T in 2008?

It’s a New Year, so its time for those New Years resolutions.

We all have things we would like to change in 2008, maybe paying off a store card or credit card, starting a savings plan or finally looking at those mounting debts and taking some action to tackle them. But we all know that New Years resolutions sometimes only last until the last Christmas card has been recycled! So make it different this year, make 2008 the year that you make changes that could make a difference to the rest of your life.

We know it is easier said than done, and quick fix solutions just don’t work. So we are looking at making changes to lifestyle and financial habits that will have long term benefits.

Using a S.M.A.R.T approach could help…

Read below to find out how to make a S.M.A.R.T start to your new financial lifestyle.

S - Is for Start

Making a budget is the best place to start. This will show if you have money to save, or just enough to cover your expenses, or that you are spending more than you have coming in.

*****If it’s the last one, get help now!!*****

Start looking at where & why you spend money. A weekly or monthly diary will allow you to see how you spend (e.g. ATM withdrawals, switch or debit card or credit cards.

You may be surprised at the results, but it is a really useful exercise to start looking at your relationship with your money.

M – Is for Making Changes

Start with the small changes. Check your bank account and look at your direct debits.

• Are there any old direct debits that you have forgotten to cancel that are still being paid?  You need to know exactly what you are paying out on direct debits & standing orders and for what.

• Shop around for the best deals on utilities, phones, and insurances (see www.uswitch.com).

• If you are using credit and feel that you are managing all the payments ok, check that you are getting the best deal for the type of borrowing you use – check out money saving expert .com

• Have you been charged for using the ATM? Either use a free one, or if you have no alternative, limit your visits to the ones that do charge.

• Look at the ways that you can save money. Most of these are painless but do require a little organisation:

• Buy pre paid travel cards –they normally save you a little money on buying your fare daily. (It also avoids the deadly disappearing ten pound note -Break into it to get change for the bus, by the time you have bought a newspaper, drink and a snack for breakfast, you have spent £10.00-and that’s before Lunch!!).

o        Have breakfast before you leave for work. And no – the “I haven’t got time “excuse will not work. You need to get up a bit earlier! If you don’t like to eat in the morning then make a snack to take for later in the morning. Make sure you have something that you like. If you hate cereals then don’t have them, a cooked breakfast can be just as quick – make an omelette, or have beans on toast. It’s also healthier than buying breakfast, and you can squeeze in a couple of your five a day fruit & veg portions.

o        Take a packed lunch rather than buying, or do 3 days packed lunch 2 days buying. Again, it doesn’t have to be a sad little sandwich. One idea is to take a portion of what you had for dinner the night before, or try making soup –cheap and healthy.

A - Is for Adding It Up

Start looking at how much those little habits cost - and not just the obvious things like cigarettes or alcohol. The daily spend that just disappears into your budget such as coffee & soft drinks, sweets, take away food, CDs & DVDs, magazines & newspapers, presents, toiletries & make up.

Then you can work out how much you could save, and if you really want to continue spending your money in this way.

Spending £10.00 per week for example adds up to £520.00 per year.

Have a no spending day (or week) if you are brave! 

Just make sure you have pre paid or have money for travel and have food supplies and entertainment (a book or an iPod) – and then buy nothing!

R - Is for Relationship

Take the plunge and take an honest look at your relationship with your finances.

Have you been putting off making a budget because you don’t want to face the truth? Do you overspend because you have other issues that you feel you need to deal with? Don’t be afraid to ask for help if you feel you have emotional issues that are effecting your financial decisions. Your GP will be able to help with counselling services.

Start making decisions rather than just allowing things to happen- if you want to start saving, or you want to clear outstanding credit or debts then take the first S.M.A.R.T step.

Even if you can not make the changes that you wish to make straight away, being in control and making informed decisions will make you feel stronger and more positive about your financial future. You can share you experiences with other people and get help and advice from this site and our message board (link).

T - Is for Taking Control

Decide on a time scale to ensure that the changes that you want to make are realistic.

You could look at making a budget within the next 7 days

• You can look at giving yourself a month to change a bank account or get a better savings account.

• Perhaps you could commit to making changes for a period of 6 months to see how much you can change your spending habits

• Commit to clearing off your store card or credit card in 12 months (if that’s possible).

Many options for dealing with over commitment on credit debt are over much longer periods than a year, and that is why CCCS will give you the best advice based on your circumstances. You may have to consider an option that is quite challenging, such as a long term debt management plan, or alternatives such as Insolvency.

Please contact us if you think you need help, and help all our other web users by posting your thoughts and sharing your experiences on here and on our Message Board.