Explore our range of topics below for tips and guidance on budgeting and managing your money.
Budgeting can be a very useful exercise in helping individuals take control and manage their money. This should be carried out on a regular basis as circumstances and situations develop and change over time.
Review your current situation
Don’t be alarmed when carrying out this task, you may even find that the simple task of noting down any debt you have can start to lift the weight, and provide that little bit more determination to sort your finances.
Detail your income and expenditure for the year ahead – budget planner
Following on from this, it can be useful to detail all of your typical income and expenditure each month. This should include all expenses from mortgage payments, car loans, food and gas through to school fees, petrol and gym memberships. It may be that your current expenses have dropped as a result of the current lockdown regulations in place and you have actually had some opportunity to save additional amounts, or perhaps more likely, you/ your partners income may have also dropped throughout this time. Understandably, it can be hard to know when your ‘normal’ income and expenditure may resume, however you should try to be as realistic and accurate as possible. And remember you can regularly review this on an ongoing basis as situations and circumstances change.
At this stage, you should also factor in any debt that is required to be re-paid - be sure to prioritise those with high interest rates and charges etc., as well as factoring in any large milestones or plans you hope to have this year.
Producing your budget planner should then allow you to identify two main things:
Do I spend more than I earn? An instinctive assessment is easy – if you're eating up your savings or building up debts, you're likely to be overspending. Yet before you can address this it's important to get an accurate idea of the size and scale of the problem.
What can I afford to spend and save? Once you know where you're spending, you can start to alter and prioritise what you do with your money to enable you to stick within your means. This should involve factoring in repayments of any outstanding debt. You may also wish to set up regular savings with any additional income you have each month. You may also wish to make use of budget apps such as Yolt, Money dashboard and Monzo.
What should I do if I am overspending?
According to Money Helper, there are a number of simple steps you may wish to go through to try to reduce the amount you're overspending.
Step 1: Cut bills without cutting back: This is about ensuring you live the same way but pay less to do so. It's pain-free as no lifestyle changes are needed. Don't just look at the obvious things like credit cards, energy bills and mortgages. You can save on things like your supermarket shopping too.
Step 2: Re-budget with what you expect to save: Once you have carried out step 1, it's worth revisiting your budget planner to incorporate your new predicted expenditure based on the expected pain-free savings. You may then find that this is enough to reduce your overspending.
Step 3 – More significant cut backs: Following this, you may find that you are required to cut back further and may have to take more significant action. You may find that you need to spend less or do less and sell things until you are living within your means.
Start small. Cutting out your £2.50 weekday coffee could reduce your annual expenditure by more than £600. Add newspapers, magazines, cigarettes, chocolate, parking and more, and savings mount rapidly.
Ask yourself, do I need it? If I do, could I do it more cheaply? If the past year has taught us anything, it’s to appreciate the little things. Why not consider continuing date night at home instead of going out every Friday night when you can. Or consider walking/cycling to work as opposed to spending money on public transport.
Don't be afraid to sell things: If you're asset rich but income poor, then consider selling things you don't use or need. Of course, these sales are one-offs, but hopefully you can use the money to repay debts or get your savings back together. Consider working through your wardrobe and getting shot of old clothes, or sell any old mobile phones/ electronics that you no longer use.
If you still find that you are in debt/ continuing to overspend, it's likely that you require more urgent guidance. Visit free non-profit debt crisis agencies like Citizens Advice Bureau, StepChange Debt Charity or National Debtline as soon as possible.
Student loans and credit cards are two of the most widely held types of debt. Both student loans and credit cards are a type of unsecured debt. This means there is no collateral tied to the debt like with a mortgage or car loan.
Student loan repayment options are far more flexible than those available for credit cards and also typically have lower-interest rates than credit cards.
Credit cards on the other hand, have a low minimum payment that you must make each month to keep your credit card in good standing – they may penalise you by raising interest rates if you miss even a single monthly payment. You can optionally pay more than the minimum to pay off your balance sooner.
When planning debt repayment, one of the first steps that you should take is to set aside a sum of money to prepare for emergencies. One of the biggest roadblocks to debt repayment is having to deal with unexpected expenses. Creating a budget will help you to understand where your money goes, and may allow you to identify areas you can cut back on to focus on debt payment.
For example, find ways to reduce meal costs by eating at home and looking for cheaper food options at the store, such as generic brands. You may also wish to set up a plan to make realistic repayments via monthly payment goals. Choose a sensible amount to pay towards your debt every month. This approach will keep you continually moving towards your goal of full repayment. You can also put extra money toward your debt if it is available.
The danger of pay-day loans:
Another common form of loan, pay-day loans, are short-term loans designed to help people who are a bit short of cash before payday, as the name suggests. Payday loans play a prominent role within today’s society – providing the ability to quickly borrow a small amount of money, to meet unexpected costs like replacing your boiler or repairing your car.
In theory, the borrower will use the money to tide them over and repay it as soon as they get paid. However, unfortunately it doesn’t always work like that. Many borrowers are unable to repay the full amount and as such their debt grows thanks to the fact payday loans have notoriously high interest rates. There are a number of dangers of payday loans – including high costs and risks. Borrowing from a Payday Lender may also likely have a negative impact on your ability to obtain credit in the future from more mainstream providers.
When borrowing money, it’s important to pay attention to your credit score, especially when it comes to making large purchases such as your mortgage.
Credit Scoring is basically a way of predicting future behaviour. If you have a poor credit score, companies may be less likely to offer you a high loan as there is more risk that you will be unable to pay it back.
There are a number of websites online that allow you the chance to check your credit score without affecting it. Don’t worry if your credit score isn’t great – it may be that you have simply not borrowed enough in the past to ‘prove’ that you can make repayments when necessary.
In general, credit history is built up slowly over time as you increase the number of on-time payments you make, as well as a number of alternative actions you can take to help contribute towards this:
Register on the electoral roll: if your name’s not on there, you’ll find it much harder to get credit.
Pay your bills on time: a great way to prove to lenders that you’re capable of managing finances effectively.
Reduce high levels of existing debt: ideally you should eliminate any outstanding debt before applying for new credit. This is because banks, building societies and credit card companies might be hesitant about lending you more if you already have a lot of existing debt.
Limit moving home a lot: Lenders feel more comfortable if they see evidence that you have lived at one address for a considerable period. Be sure to bear this in mind.
Keep your credit utilisation low: Your credit utilisation is how much of your available credit limit you use. For example, if you have a credit limit of £2,000 and you’ve used £1,000 of that, your credit utilisation is 50%, so you’re using half of your credit limit. Normally, using less of your available credit will be seen positively by lenders, and will increase your credit score as a result.