Managing your household budget

It is impossible to predict how life will pan out. Redundancies, job losses, serious illnesses and family deaths are usually unavoidable, but they can all have a disastrous effect on your finances. The best way to prepare for such events is to work out a household budget so if the worse does happen, you know exactly how you will be affected financially. Having a budget like the one outlined below will also be useful when entering into a debt management plan.

Working out your budget

1. The first step towards putting together a budget is to work out exactly how much money you have coming in and how much you have to pay out. Some wages and benefits are paid weekly, but the majority of bills will be paid monthly so it is advisable to work out your budget for the month. Work out your total income by adding together all money earned from employment and all forms of benefit payments received per month eg. Tax Credits, Pensions, Jobseekers Allowance payments, Housing Benefit and Child Benefit payments. The end total is your starting figure for your budget.

2. Once you have worked out your total income, it is time to start deducting your payments in order of importance. From your total income figure, deduct the amounts you pay for things such as rent, water, gas and electricity. These are your priority bills and must be paid first.

3. After you have deducted the amount you pay for your priority bills, you need to do the same with your non-priority payments. These include things like mobile phone contacts, landline telephone, internet connection and television subscriptions. During this process, it may be worth looking into how you can reduce the cost of these. Can you change mobile phone tariff to save money on your bill? Do you need a television streaming subscription as well as a digital television subscription package? If you can make changes to these, do so before you move on to the next step.

4. You have now worked out how much of your total income you pay out to 3rd It is now time to work out how much you spend as a household on things like food, clothing, nappies and formula, petrol and public transport. Deduct this amount from the amount you had left after step no.3.

5. The final amount after completing the above steps is your total disposable income. From this, it would be advisable to save a certain proportion for a ‘rainy day’ so that you have funds to fall back on should something unexpected happen, that affects your monthly income.

If you have debts such as credit cards, loans and catalogues, this amount is also the total amount you can afford to pay back to creditors. If the amount is lower than the total you are being asked to pay each month, a Debt Management Plan would be a good way of repaying your debts with a single, much lower monthly repayment. If you would like to learn more about Debt Management Plans, you should get in touch here to find out if this is the right option for you.

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