Simon Hopes, Negosentro | Money worries are at the heart of some of the most stressful situations you can find yourself in, and that’s official. There have always been periods of prosperity followed by periods of austerity throughout history, and the fortunes of individuals are influenced in no small part by these economic changes. The days of easy credit and sub-prime mortgages prior to 2008 may have gone, but there is still a culture of borrowing and paying later that is fueled by access to credit facilities. There’s nothing wrong with borrowing money, after all, whole corporations and even nations would have been sunk without the ability to borrow; the trick is to find the right balance so that you gain the benefits of credit without suffering the problems of debt.
Income versus outgoings
This is simple math, the kind you probably do every day in your job or for your business. By comparing income and outgoings, you can calculate how much you should have left at the end of each month, and thus look at how you can budget effectively. The best way to do this is with a personal budget sheet. There are numerous apps available that can help you manage your personal budget, or you could create a spreadsheet personalized to your own taste. Either way, find something that suits the way you like to keep track of money and that you will find straightforward to use.
What to include in your personal budget
Make sure you list every expenditure and every form of income:
- Regular monthly costs are the easiest to add, as you will either have a direct debit in place or access to your bills. This way you can see clearly what factors like the telephone, power, mortgage, rent, water and Internet connection cost per month.
- Less predictable but still regular outgoings such as groceries, clothes, household maintenance, vehicle upkeep, and gas, can be budgeted for by adding up what you spent over the previous twelve months and dividing by twelve to get a monthly rate. These outgoings are harder to control, as it’s easy to add in a few luxuries to your weekly shopping cart at the store, and some costs like gutter repairs, for example, are hard to predict. Work out a sensible budget based on previous expenditure for the groceries and be realistic about how much you spend by coming up with a maximum spend per month figure. The best way to cover yourself for unexpected expenses is to create a contingency savings account, into which you pay an amount each month which will help cover unforeseen costs like the gutter repairs.
- Less frequent expenses mustn’t be forgotten, although many of these can now be paid in installments too, which can make it easier to budget for. This includes costs such as insurance, breakdown cover, memberships and subscriptions. If you do pay these annually or quarterly, you can either enter them as single expenses in the month they are due out, or you can work out a monthly sum that will add up to the whole. The latter option makes budgeting easier, but you will need to remember to put this sum aside each month into a savings account. Otherwise, you will still end up with the big bill to cover.
- Don’t forget to include entries for all the extras, sundry expenses, and leisure pursuits. If you visit the hairdresser once a month, go out for dinner every weekend or spend money on your hobbies, you need to include this as ongoing expenses that need to be accounted for. You should also have a fund for personal spending, so you don’t need to worry about buying a magazine, or getting birthday presents for friends and family.
- Income is usually less of a chore to calculate, as you will know what your net pay is every month. You can include any benefits, maintenance payments, dividends on investments or interest on savings as income too. Bear in mind that if you are self-employed, you will need to save for your quarterly tax return.
Making use of your personal budget
Once it’s set up, keep a check on it and update the entries as time passes. This way you’ll be able to see whether your spending predictions were accurate and then adjust the entries accordingly. You will be able to see how much you are spending per year on each category of expenditure, and take action to reduce unnecessary costs and put more into savings. You should also be able to calculate how much you can afford to put aside for expenses such as a vacation or a new car and start saving for some of the things you want to have.
Using credit wisely
If you want to manage your way out of debt or find a way to pay for credit more cheaply, use credit cards with special offers on them such as balance transfers, which give you the chance to transfer your debt from other cards to a new card which doesn’t charge interest on the debt for a fixed term. If you are clever and shift to a new balance transfer deal every time your free period expires, you can save a lot of interest charges on borrowed money. Do check what the fees are for moving the debt though, to make sure the savings will outweigh the transfer charges. You could also look at loans, which you can obtain from your bank or by contacting a broker such as Wire Lend. Go for loans that offer a reasonable interest rate on the repayments and avoid the payday type loans that can charge interest at very high rates, which will add to your debt problem in the long run. It also pays to check the rates you are paying for mortgages and existing loans, plus utilities and the everyday expenses, to see if there is a better deal around which you could save money by switching to.
Managing your money is worth the investment of time and effort, as you will be in control of your finances and able to use your income to get where you want to be rather than having the money controlling your life.