Home Loans
Debt Management - Budgeting and Financial Controls
(presented by www.refinance-refinance.net - mortgage lenders)
By keith wallis
The most fundamental basic of debt (or money) management is to be in control. To know about every penny that comes in and where every penny goes. Ideally, when you open those envelopes that arrive on the door mat every day there should be no surprises.
If you are in debt and/or having financial difficulties, you need to bring yourself around to a situation where your income exceeds your expenditure - you need to establish a budget and stick to it.
Budgeting and sticking to it are two separate things. In this article I am going to cover setting the budget only, sticking to the budget will follow in a subsequent article.
Before carrying on it is worth noting that the principles outlined below are good for not only reducing debt, but also growing personal wealth overall - effectively an investment for the future.
Establishing Costs and Income
The first thing to do is to recognise that all spending is not equal: that some monthly expenditure is more important than others. For example, not paying your council tax for a few months could land you in jail.
The next thing to recognise is that some outgoings are fixed and others are flexible. With this knowledge you can begin to tackle your flexible monthly expenditure intelligently and make progressive steps to reduce outgoings both immediately and over time.
Additionally, you also need to recognise that even fixed expenditure may be reduced with the right approach.
The next thing to do is to list everything you spend money on over the course of the year.
I have put together a budget planning sheet for the purpose of helping you do this. You can download it by using this budget planning sheet link, http://tips.cars-and-money.co.uk and clicking on budget sheet on the right hand menu, or by going directly to the file download by using: http://www.cars-and-money.co.uk/tips/debt-management/downloads/budget-sheet-p1.xls
The most critical items are towards the top of the list, i.e.:
housing costs;
- rates and utilities;
- important household services;
- personal insurances.
With the critical items, the consequences of non payment can either be very high and/or occur very quickly, e.g. loss of house, loss of electric, water or gas supplies, imprisonment etc. It therefore makes sense to attend to these bills first.
The next part of the list is critical in terms of day to day living, but much more discretionary, i.e.:
- motoring expenses;
- food and housekeeping;
- miscellaneous goods and services;
- personal and leisure;
- sundries and emergencies.
This group includes some very fundamental items such as food; however, how food is purchased can have a massive impact on monthly expenses. For example, living on takeaways is obviously much more expensive than shopping carefully in the local price leading supermarket.
While detailing the first section is usually fairly clear cut (just check past bills), this section is fraught with difficulty as most of it can be cash or lumped spending. That is, a figure of
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