Part 1: Budgeting and Managing your money

For many people, money is a background issue to life. It comes in, it goes out and very often problems aren't appreciated or reconised until that terrible day when your card goes into the ATM machine and the machine says 'NO'!At that point, people will wonder why there is more month than money and sadly too often will then go on to borrow from friends, family or one of the on-line sites with horrendous interest rates. Over the years at the presentations of Money Matters that I have given, I have been surprised that the number of people who manage their money with a monthly budget is quite low, probably less than 10%. A budget is quite simply a list of all your incomings on one side and your outgoings on the other side. It should provide a picture of whether you have enough money coming in to meet your needs or whether there is a problem with your expenditure. No matter how well off we think we are, a budget is an essential tool for gaining control of your money and remaining in control. If we don't have enough money to meet our bills, we can look at our outgoings and see if they can be reduced, or if things are worse than that, we can recognise the size of the problem and take steps to get help. If there is more coming in than going out, it's time to plan, set goals and decide on how to make the most of saving.

People have found this simple diagram very useful when trying to figure out where they sit on the traffic light for budgets, so take some time to look at this as well. In setting up your budget, you can take a simple pen and paper approach to it, but in my experience a spread sheet is probably the best way to approach it. You keep your income on the left side, and generally this is a stable figure. Include all your income such as salary, partner's salary, tax credits, child benefit and disability allowances. It's a good time to make sure you are mazimising your income and making sure you have the correct tax code and receiving any benefit you are entitled to. This is also a good time to review who lives in the house and what they are contributing. With the big increase in adult children returning home to live, it's worth having an adult conversation to discuss a reasonable contribution to the household. I know that this is an issue many people shy away from, and parents particuarly feel that they should be able to 'provide' for their children. Another way of looking at this is that we need to make sure children understand the value of goods and that giving them free bed and board for life doesn't really help in their fuller understanding of the personal financial world. On the other side of your spresdsheet, list your outgoings for the month. It is useful to have your bank statement to hand for this, as there may be items you forgotten or amounts you need to check. We can look at spending in terms of priority spending that includes housing costs, transport costs and food/ housekeeping and then non-priority spending which includes cards, unsecured debts and non-essentials like gym membership, SKY TV and so on. Again, I have devised a little diagram below that people find useful:

I would normally split expenditure into 2 columns for essential and non-essential spending, just to give an idea of where things sit at the time and to be sure there is enough income to meet the essentials.

Once you have all this information, you will know where you sit on the traffic light diagram for earlier. In the next post, I will start breaking down those areas and look at ways of managing money depending on where you stand in relation to your position.