When it comes to managing your personal finances, there are several tactics you could adopt to stay on top of it. We’re going to take a look at just one of these now – budgeting.
Budgeting is all about understanding and controlling your finances. It’s widely seen as the most important part of managing your finances, and with good reason too.
A budget lets you see a financial plan ‘from above’ – so you will be able to see if there are any potential financial disaster or problems (or current problems), and be able to act swiftly to deal with them either before they happen…or before they get worse.
Budgeting can also be a good way to manage any unsecured debts you have – as it lets you plan out how much you need to set aside for them each month. This is just one of the ways you could improve your debt management skills – to read more about this you could seek some debt management advice here.
Let’s take a look at how you could create a budget.
First of all, you’ll need to write down everything you earn in a month – that includes your take-home salary and any benefits or grants you receive.
Once you’ve written your income down, you should move onto your expenditure. Write down everything your household spends each month on – to start with – your priority debts (mortgage/rent payments, Council Tax, etc.) and your everyday living costs – food, travel expenses, etc.
Note: you shouldn’t write down money you spend on luxury items or unsecured debts at this stage – you will cover these next.
When you’re sure you’ve accounted for all your essentials, you can work out your disposable income. This is basically the amount you have available to pay towards your unsecured debts each month and, if you’ve got anything left after doing so, saving and luxury purchases.
Simply subtract your expenditure from your income and you’ll be left with your disposable income. Once you know how much disposable income you’ll be left with each month, you need to work out if it’s going to be enough to cover the repayments you should be making towards your unsecured debts each month.
If it isn’t big enough, you should address this problem immediately. You should start by talking to your creditors and informing them you can’t afford your debt repayments. They may agree to accept lower payments, for example, or they may advise you to talk to an expert about debt relief solutions.
If your disposable income is big enough to make your required payments and you still have some left over, you could save yourself quite a bit of money in interest by making overpayments towards your debts each month.