Now that the economy is finally out of recession, it has never been more important to look at your financial situation and to adjust your ability to improve your debt. With so many of us making debts – and the finances of the nation are much weaker than they were – it is best that you do what you can to keep track of your debts.
Budgeting is about knowing how your finances work and checking what you do with your money – in other words, not keeping your money under control! When you create a budget, you must:
- Keep track of everything you deserve
The very first thing you need to understand when budgeting is exactly how much money comes into your home every month. So start writing down everything your household earns / receives in a month – this includes salaries, benefits, grants, etc.
- Keep track of everything you spend
Now you know exactly how much money comes into your house every month, you have to take into account how much your household actually leaves. A good way to do this is to keep track of your expenses for a month and write down everything that you spend. This will obviously take a full month – which will slow down your efforts to improve your debt management skills – but it is a good way to get a complete picture of your expenses. So start by writing down your priority debts (payments to mortgage / rent, utility bills, secured loans, etc.) and your daily living expenses (such as food and travel). Do not forget to take into account the things you can pay on an annual basis, such as car insurance. Note: at this stage you should not include the family money you spend on your “non-priority debts” such as payday direct loans, credit cards, shopping cards, etc.), or any money you spend on “non-primary” products / services or maybe you startup UK business (things you can live without).
- Calculate your disposable income
Once you are sure that you are accountable for all your essential living costs, you can calculate your disposable income. Your disposable income is essentially the amount you paid monthly to pay for your non-priority debts and, if you still have one, to save and spend on non-essential goods / services. To calculate your disposable income, simply withdraw your monthly expenses from your monthly income. Once you know how much your disposable income is, you need to calculate how much the monthly repayments on all your non-priority debts cost you. Compare this now with your disposable income – if it is large enough to cover your debt repayments, it should be fine. However, if it is not large enough, it is important that you correct this problem as soon as possible. You can start by letting your creditors know that you are having problems and looking for professional debt advice to find the most suitable solution for your problems.
Hopefully the information above is useful for you.