Setting up a budget
If you want to get on top of your finances, a budget is a really good way to start. It’s just a record of money you have coming in (from things like your salary or wages, pensions or benefits) andpayments that you make (such as your rent or mortgage, insurance and Council Tax as well as living expenses and regular and irregular spending).
A great way to work out your budget is with our online budget planner. This allows you to record all of your incomings and outgoings. It then analyses and adds up your figures and gives a breakdown of where your spending goes each month across the following broad categories:
- Household bills
- Living costs
- Financial products
- Family and friends
You have the option to save your budget planner results and return to update them at any time.
Alternatively you can set a budget up using a spreadsheet on your computer or just write it all down on a piece of paper. Your bank or building society may also give you access to an online budgeting tool which takes information directly from your transactions.
Checking where your money goes
If you’re spending more each month than you are getting as income, the next step is to look more closely at where your money is going and where you can cut back. Even small amounts – for things such as magazines, sandwiches at lunchtime or takeaways – can add up.
Keep a spending diary
Keeping a spending diary is an effective way of seeing exactly what you spend your money on. Try making a note of what you spend for at least a month (including even small purchases). If you can do it for even longer, you’ll get a fuller picture of what you spend your money on.
Once you have a clear picture of where your spending is going use our tips and tools below to see how you can make savings.
Paying off loans and credit cards
If you have loans or owe money on credit cards it usually makes sense to pay off the debt that charges the highest rate of interest first – it’s the fastest way to clear your debts. Knowing this is useful if you have several different debts charging different rates of interest, such as:
- Store cards, which normally charge the highest rates of interest
- Credit cards
- Personal loans from the bank, which normally charge a lower rate of interest than credit or store cards
It is important to make sure you don’t break the terms of any of your agreements. So even if you’re focusing on paying down another debt, you must pay at least the minimum on any credit cards and your monthly required payments on any loan agreements.
If you’re overwhelmed by your debts
Often, the hardest part of paying off your debts is taking the first step. It’s easy to feel overwhelmed if you know you’re struggling financially. It’s tempting to bury your head in the sand and ignore your bank statements and demands for payment, but it won’t make the problem any better and could make it worse.
So, take a deep breath and open any letters you’ve been ignoring. Once you’ve done this, at least you’ll know what you have to deal with and you can work out what you need to do next.
Getting help if debt problems become serious
If you’ve already missed credit card or loan payments or if you’re behind with so-called ‘priority debts’ such as your rent or mortgage, energy bills, Council Tax, child support or court fines, take advice from a debt advice charity straight away.
Set a savings goal
Some people find it hard to get motivated about saving, but it’s often much easier if you set a goal. That way, rather than thinking about the money you are setting aside each month, you can focus on what you will be able to do once you’ve reached your goal.
Your first step is to have some emergency savings – money to fall back on if you have an emergency, such as a heating boiler breakdown or if you couldn’t work for a while. Try and get three months’ worth of expenses in an easy or instant access account. Don’t worry if you can’t save this straight away, but keep it as a target to aim for.
Once you’ve set aside your emergency fund, possible savings goals to consider might include:
- Taking a holiday without having to worry about the bills when you get back
- Having some extra money to draw on while you’re on maternity or paternity leave
- Buying a car without taking out a loan
The easiest way to save is to pay some money into a savings account every month. It’s worth setting up a standing order if you can, so the money goes straight from your bank account without you having to do anything.
It’s a good idea to:
- Pay the money into your savings account as soon as you get paid, rather than at the end of the month
- Increase the amount you save if you get a pay rise or any of your outgoings (such as your mortgage or insurance costs) fall
- Check that you are getting a competitive rate of return on your savings
- As your savings start to grow, you should:
- Take stock
- Make an investment plan based on your goals and timeframes
- Find the best home for your money in the longer term
H/T Source: MoneyAdviceService.org.uk