Managing your money
Budgeting gives you an accurate picture of your financial position. If you know where your money is going, you can make choices. This can range from changing your spending habits so that you can deal with financial problems to finding ways to save for things that you want to spend money on.
05/01/2011
Budgeting is essential for managing bills and debts such as loans and credit card payments. If you delay or miss payments, this may affect your credit rating and can cost you a lot of extra money in additional interest. Your credit rating is looked at if you make an application for a personal loan or bank overdraft.
The biggest benefit of good budgeting is peace of mind.
How do I budget?
In order to budget, you need to spend some time noting down your income and your expenditure. When adding up your income, you need to take account of the amount you are paid for any work you do, any benefits and tax credits you are receiving and any other source of income such as money from a relative or a student loan. You then carry out the same exercise with your outgoings – so everything from food to fares, birthday presents and the costs of going out need to be recorded.
To make this process easier, you can use the budgeting sheet included in our downloadable booklet, ‘Managing your money’. Simply click on the link on the right-hand side of this page to download it. Remember when calculating your budget, you need to use either weekly or monthly figures to achieve accurate results. If you anticipate any difficulties with this, why not keep a daily or weekly spending diary for a month so you can collate all of the information to plan your budget at the end of the month?
Priority Debts (Possible Action)
Rent / mortgage (Eviction)
Council tax (Bailiffs* / attachment of earnings / prison**)
Gas / electricity (Pre-pay meter / disconnection / reconnection fee)
TV licence (Fine / prison**)
County Court judgment (Attachment of earnings / Bailiffs* / charging orders)
Magistrate’s fine (Bailiffs* / prison**)
Secured loan / secured overdraft (Loss of the item given as security - this could be your home)
Hire purchase (Loss of goods)
CSA / maintenance payments (Deductions from earnings / prison**)
Inland Revenue / VAT (Bailiffs* / Bankruptcy / prison**)
* Bailiffs can seize possessions to the value of the amount you owe plus costs
** Prison only applies if you willfully refuse to pay
Student loan (from September 1997 onwards) and benefit overpayments are also considered to be priority debts.
Examples of non-priority debts are credit and store cards, unsecured loans and overdrafts, credit sales and loans from family and friends. If unpaid, all of these could result in a County Court Judgment (CCJ). If you have a CCJ, you may find it difficult to obtain credit or a loan. Other non-priority debts include catalogues, which are not enforceable if you have not signed a credit agreement.
Money borrowed from ‘loan sharks’ is usually very expensive and, in extreme cases, you could find yourself threatened with violence if you do not repay the loan on time. If you find yourself being harassed by a loan shark, you should report them to your local Trading Standards office and to the Police if they threaten you or use violence.
Prioritising your debt
If you are struggling with any of your debts, it is important to ensure you target your priority debts first. It is also best to contact the people you owe money to as quickly as possible as this often helps with agreeing a way to pay off the debt that you can afford. They may be able to set up an agreement where you can spread your payments over a longer period of time whilst you get your finances sorted out.
When you contact people to whom you owe money, make sure you are organised by preparing your budget and a list of everything that you earn and owe. Sending this information to a company may help them to understand and be more sympathetic to helping you find a way to pay. Once you have established which are priority and non-priority debts, you can identify other areas in your budget where you may be able to make savings.
- Consider cutting back slightly on non-essential items
- Compare gas and electricity prices and switch to the cheapest supplier
- Shop around for the best deals on insurance and make sure you only get the cover your family requires
- Stick to a limit on spending money on entertainment and recreation
- Consider setting up a basic bank account and arrange direct debit payments for your regular bills
- Check the APR (annual percentage rate) on your credit card and loans. This shows the overall cost of borrowing including interest and charges. You may be able to shop around for a better deal.
- Check the tax code on your payslip. If you think you are on the incorrect tax code, contact the tax office. You need to obtain your employer’s reference number and the details of the relevant tax office from your employer first.
If you want to borrow money to pay off existing debts, be sure to obtain professional advice as you may end up worse off. You need to check the terms of any loan (interest rate and length of time to repay loan) and make sure you can afford to pay it back.
If you are on a low income, you may be entitled to additional benefits or tax credits. The government’s Directgov website, www.direct.gov.uk, provides extensive information on the range of benefits available.
If you are not able to control your debts, seek help and try not to panic. You are not alone and advice is available. Our Rent Income and Arrears Team can provide you with support and assistance with setting up a budget, prioritising your debts, checking if you are entitled to any other benefits and working out how you can live within your means.