If you are having difficulty paying your bills it could be because your monthly outgoings exceed your income. When you are struggling with your finances, one of the most valuable things you can do is to set a monthly budget. This involves comparing total outgoings with total income. By working out your budget you can highlight the reasons for your financial difficulties and this forms the basis for taking positive action.
In fact, when you go to a debt management company for help they usually ask for details of your income and expenditure, as well as your assets and amount of debt, before suggesting a suitable debt solution. This is because calculating your budget is an essential starting point for putting your finances in order.
Budgeting is easier than you think. Start by collecting your bank statements and highlighting all regular outgoings that appear on them. You will need to look at about six months’ worth of statements as you may have some items that aren’t debited every month. Then, list all the items that appear each month, preferably using a spread sheet, taking care to add only one entry per month.
You should also collate regular bills, such as utility, telephone, insurance and council tax. These may not all go through your bank account on a monthly basis, for example, you might pay some by credit card. For items that are debited quarterly or half yearly, you need to add up the total expenditure for the year then divide by 12 to find the monthly figure. If you don’t have all your statements then it may be a good idea to contact the companies issuing the bills to obtain details of payments.
Next you need to look at any other items of expenditure that may not be included on your bank statements or bills. You may have paid for some items by cash and these can be the most difficult to keep track of. Take care to include everything; here are some examples that may apply to you:
· Travel costs
· Childcare costs
· Food bills
· Pension Contributions
· Maintenance payments
· School dinners
· Children’s pocket money
· Prescriptions and health costs
· Nights out
In each of these cases you should calculate the monthly amount. So, for example, if you pay childcare fees weekly, you will need to add up all the weekly amounts so that you can firstly find the total for the year. Next, divide this by 12 to arrive at the monthly figure. You should also include any money spent on Christmas, holidays and birthdays as your budget should reflect your total expenditure. Once you have listed all your monthly expenditure items you need to add them together to find your total monthly outgoings.
The next stage will be to calculate your monthly income. If you are not paid monthly then you need to convert your income to a monthly amount using the same method that you applied for expenditure. Income should be the net amount received after tax deductions. You should list all household income including any benefits, allowances, maintenance, pensions and income from property.
Comparing Income with Expenditure
When you have listed all your monthly income, add the items up and compare the total to your monthly expenditure total. This could be a revelation! Although it can be alarming to find that your expenditure exceeds your income or that there is little income left once you have paid everything, at least you now have a full picture. Using these details you can start to decide how to improve your finances. This will involve either increasing your income or decreasing your expenditure.
When looking to decrease your expenditure make sure that you pay your priority debts first. These are debts that incur serious consequences if they are left unpaid, such as your mortgage or council tax. Aim to reduce expenditure on luxury items instead by perhaps reducing your number of nights out or spending less at Christmas.
If your total income far exceeds your total expenditure but you are still struggling financially then you need to take another look at the figures. Make sure that you have included everything and that you have added the totals correctly. On the other hand, if your expenditure exceeds your income and you cannot see a way to redress the balance, it may be a good idea to seek further advice. Either way you have taken a decisive first step to organising your finances.