Jenny McGreevy, Managing Director of Refresh Debt Advice, offers advice on how to deal with financial problems head on!
In my experience of dealing with thousands of clients, one of the biggest issues is burying your head in the sand. This is of course completely understandable; we don’t like to talk about money or budgets, especially with our nearest and dearest.
So where do we start?
My starting point is always to review your bank statements over the past three months. Use this information to complete your household budget. You will need to do this with both you and your partner’s bank statements if you live in a joint household.
Income
The first figure you will want to calculate is your household income. This should be the amount you take home on a monthly basis if you are working after tax, national insurance, pension and student loan has been deducted. You will also need to calculate any benefit income you have into a monthly figure. So for example, if you or your partner are in receipt of child benefit you should multiply the weekly amount by 52, (which gives you your annual allowance) and then divide by 12, which will give you the amount you receive per calendar month.
Expenditures
You should then confirm your essential household expenditures. This would usually be rent / mortgage, rates, electricity, gas/oil, groceries, travel costs. It will be important to figure out if any of these expenditures are subject to increases in the coming year, and to note this in your budget. You will also have child-related expenses like clothing, childcare, school uniforms, clubs and hobbies. There will be some expenditures that you may have the opportunity to review. This could be subscriptions that you no longer use, or contracts which could be switched to cheaper rates or tariffs. Typically this would be bills like your mobile phone, broadband or TV subscriptions.
Debt Repayments
You should also calculate the minimum payments you are required to make to any unsecured debts. Some repayments may increase this year as interest rates continue to increase, so take this into account.
Disposable Income
To calculate if your household has a disposable income you use a simple calculation.
Income – Expenditure – Debt Repayments =
If you have a disposable income, this is good news and your household is more fortunate than most. This disposable income is what you use for luxuries, this could be your family holiday or meals out or nights away. This is also the money you can save monthly to build a nest egg for your family.
Savings
Income shocks like a job loss or illness can lead to extreme financial hardship, especially if you don’t have any savings to get you through a difficult time. The ideal scenario is to have enough in your savings to cover three months of your household outgoings. For example, if you household outgoings are £2000 per month, you should aim to build a savings pot of £6000.
What can you do if your outgoings are higher than your income?
If you have reviewed your budget and there are no expenditures that can be reduced or cancelled then my recommendation is to seek some professional help. Trained debt advisers, like myself, are here to help in these situations. It is important to seek help early, as this increases the chances of a better outcome. Reaching out for help is probably the hardest step, however time and time again, people express the relief after speaking with a trained adviser.
Budgeting Apps
Putting a budget together can be quite daunting, particularly if you haven’t done it before. Luckily there are lots of apps out there that can help! Some online banks like Monzo or Starling have a range of budgeting features built in. However, you don’t have to move your bank account to use a budgeting app, there are so many available I couldn’t talk about them all. Apps like Emma, will link to your bank account and make recommendations on saving opportunities. Money Dashboard is a free personal finance app designed to simplify your saving experience by providing easy budgeting, saving options and even a forward planning function.
Regular review
It is very important to regularly review your budget throughout the year. Every month is different, so months where you have children’s birthdays or school holidays can be more expensive and need to be forecasted. If you have a joint budget, you and your partner should both be involved in the making and reviewing of the budget so both of you are on the same page. Often one person takes more responsibility for this area, so sharing responsibility, shares the burden.