Debt Help - Budgeting Advice
The first thing to do when working out your budget is to prepare carefully. You will need an A4 pad, or if you have access to one, a computer spreadsheet program. You will need to have an "Income" and an "Expenditure" column.
Get your recent wage slips and bank statements to hand, your cheque book if you use one and all recent bills for things such as utilities. Don't forget to make a note of things such as car insurance and tax even if you've paid it for the year. It's still something you need to budget for next year.
You need to be totally honest and realistic about things or the budget will be meaningless and of no help to you. If your income sometimes includes overtime or bonus, you should exclude this unless it becomes regular or guaranteed. The only income figure of interest is the net figure after all tax, insurance and similar deductions have been taken off.
If you have a partner with an income or any other sources of income you should write these down applying the same rules. Add all your net income together not forgetting to include things such as Child Benefit, Tax Credits, Income Support, DLA etc. If you have employed children or lodgers, also include the income from them.
If you are in receipt of Housing Benefit, Council Tax benefit or any similar kind of payment be sure to include these as well. Even if you never actually receive it because it goes straight out to your landlord, the council etc, it's still best to include it. When you calculate your expenditure, you will be putting the payments down as well, so don't worry.
Once you're sure that you have the total of all your household income down, you can start on the expenditure. This is where you need to be careful to include everything and be totally honest about it. As an example if you normally spend £30.00 per week on car fuel but think you should be able to reduce it to £25.00 and it sounds “too much” put £30.00 down. It will only cause you problems later on if you don’t make sufficient allowance.
If you have arrears on anything such as mortgage, rent, council tax, water, gas, electricity, telephone, Inland Revenue or VAT, these are considered “Priority debts” and need to be kept separate from your creditor details. A priority debt is just that and takes precedence over unsecured debts to your creditor companies.
As for your income, if you receive Housing Benefit etc, you need to put down here how much your rent, council tax etc cost at the full rate. You will now see that ALL income and expenditure gets included and you can justify where every penny is going even if you don’t physically receive the money yourself.
If you pay any of your bills weekly, you can calculate the monthly amount using the following formula (weekly amount x 4.33) this is because there are 52 weeks in a year and also 12 months if you divide 52/12 you get 4.33 (the number of weeks in a calendar month.) As all payment arrangements to creditors are normally on a monthly basis it makes perfect sense to calculate your income and expenditure accordingly.
There are certain guideline figures which are worth remembering, but take note they are only guidelines and can be exceeded, but you do need to justify to your creditors why this is. As an example, if your heating bills are excessively high because there is a young baby or elderly relative in the household, you put down the correct figure, but then need to give the reason in notes WHY the bills are so high.
The creditors will make their decisions on acceptance of the offers based on the information presented to them. If they only have half the picture they are likely to make the wrong decision!
Some of the guidelines you may wish to use are as follows:
Gas £60.00
Electricity £60.00
Telephone £30.00 (this is for landline telephones)
TV licence £12.00
Internet £20.00
Sky or cable £20.00
Housekeeping (adult 1) £180.00
Housekeeping (adult 2 or child over 10) £120.00
Housekeeping (child under 10) £100.00
Vehicle fuel £00.15 per mile
Optical & dental £15.00 per client who has to pay for treatment
Contingency £50.00
Smoking £50.00 per client
Creditors don’t generally like to see an additional expense for smoking, however it’s not about what they like and most smokers tend to have more if they’re in a stressful situation so you may need to include a separate allowance.
Notes re: vehicle fuel and running costs
The national average mileage is 12,000 per year or 1,000 per month. Therefore if you do average mileage your allowance will be 1,000 x £0.15 = £150.00 per month. As a rule of thumb you need to include £10.00 vehicle maintenance for every 500 miles travelled per month, which is for general running costs, wear and tear, servicing, MOT testing etc. In the average example above you would need to include £150.00 for fuel and £30.00 for vehicle maintenance.
As stated previously all the guidelines are just that and if your expenditure exceeds any of them make sure you justify the reason for it in notes.
Once you have written down all your expenditure you also need to put down £50.00 (average) as a contingency fund. This is just for emergencies for example, if your washer breaks down and needs to be repaired. Once most people have written down all their income and expenditure, they are horrified to see just how much it costs them to pay all the bills each month. You will probably find the same. It’s only by completing the exercise properly though that you can begin to get back on track. You will be able to see where your finances are failing and how to try and put things right. You only have two or possibly three options if the books don’t balance: increase your income, reduce your expenditure or a combination of the two.
Once you have completed all the above and are fully satisfied you haven’t left anything out, whatever’s left (if there is any) is the amount that will go to your creditors and the system will determine the individual payment amounts for you. If there is no disposable income, the system will automatically allocate £1.00 per creditor per month.
