It is an issue Moolr revisit on a regular basis. Those that look to take out loans are by definition not awash with money. But as part of the advice we offer, we always suggest revisiting your finances before committing to a loan. See if you can make savings and free up some money. With that in mind, we present a guide to budgeting.
Work Around Your Income
It’s the starting point for all budgeting. The take-home pay you receive every week, or month. That amount determines everything else. Most people know how much they earn, but it’s your take-home pay you need to determine. That’s the amount you actually get to spend, once tax, pension contributions and other sundries have been deducted.
If you have other income streams, add them on too – you need one figure as your starting point.
Calculate your spending
It is vital that you sit down and write down every expense that costs you each month. Work out where your money actually goes. Every penny. Some of the answers may surprise you. Itemise your regular spending. Start with the necessary spending, then map out the less important purchases. Once you’ve worked out how much you earn and how much you spend, work out the difference. Discover how much funds you have left over, if any. If you’re spending more than you’re earning, you need to change and develop healthier spending habits.
Decide between ‘needs’ and ‘wants’
There are certain things that you need to spend money on. They are vital to maintaining a satisfactory standard of living. Needs will most likely include bills, debt repayments and other essential living costs. Rent or mortgage a payments are included. The wants are less vital to your standard of living. Such items may include restaurant bills, holidays and technology purchases. Needs and wants can overlap. There is not always a clear divide. For instance, we need housing, but we might want a larger home and an extra bedroom in a certain postcode. We need food, but we want to eat at a restaurant. How much you can and should spend on home dining is open to debate too.
Have a look through some of your expenses, and work out which ones fall in each category. If you must reduce your spending then decide which wants can be missed out on, or spent on less frequently.
Debts v savings
Typically, it’s good to use some of your earnings to repay any debts you might have as well as trying to add to your savings each month. Naturally we view paying off debts as a priority. If your debts come with interest payments then this is correct to think this way. As most lenders charge interest on any money you borrow from them, the more you pay off, the less interest you will incur. However, if you have your debt interest-free you may have some leeway to use spare money for savings, as long as you never end up paying interest on debts. Ensure they are paid off before the offer period expires.
Savings are great for avoiding stress in life with last minute emergencies and unexpected costs. If you can, try and set some cash aside wherever possible. Even if it sporadic or occasional. Pick an amount you’re comfortable with, and adjust it according to your budget and your monthly incomings and outgoings.
Realism
Your budget needs to work for you. We all do it, and that is turn a blind eye to our problems and our situation sometimes. But if you want to be skilled at budgeting and organising your own finances, you must be realistic. Do not kid yourself that things will change or overstretch yourself. Face reality and any uncomfortable truths. Never set unrealistic goals. The result is inevitably that you end up worse off than before.
Track Spending Regularly
Things change all the time, financially for us all. Expenses go up and down all the time, and you may get a new job with a different salary. You may work overtime or get a bonus. your hours may reduce. Thus, always monitor your spending. you can do it manually, with a spreadsheet, or using an app that lays everything out for you.
If you think there’s something that would affect your situation, it is worth having another look at what you’ve worked out. Decide what or if you need to change something.Everyone’s situation is different so create a plan that is tailored to you, and only you.
