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The Importance of getting your budget right

Posted 22 March 2016

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Getting your budget right is an important part of managing your money successfully, and finding the right debt solution. In this blog, we take you through why your budget is so important.

If you were keeping up with the news last week you would have seen that George Osbourne, Chancellor of the Exchequer, delivered his budget for the nation. You only have to look at the news coverage since then, to see how important the nation’s budget is considered to be. This, or course, is for good reason. Budgets can decide a lot, including what your financial priorities are, what you can achieve with your money and, ultimately, whether you end up in the black or in the red. Getting a budget right is important for all of us. 

This is why, if you give us a call to talk about your debt problems, we will spend a good portion of the call working out what your budget, and the way that money flows in and out of your household. In this blog, we’re going to look in detail about the importance of getting your budget right and how it can affect your financial future. 

How does a good budget work?

A successful budget takes into account what you’ve got coming into your household and allocates a portion of that money to each expense in your life, making sure that you end up with more coming in that going out, or at least the same coming in as going out. Some debt problems may arise from a lack of budgeting, or a flaw in your budget in the first place. However, if you have a problem with cash-flow or keeping up with your debt repayments you may find that tweaking your budget allows you to get back on more secure financial footing. 

How do you work out my budget?

Here at Debt Advisory Centre our goal is to help people solve their debt problems. If you give us a call to chat through your options, we will take you through your budget in detail and work out exactly how much money you can afford to put towards your debts each month – known as your disposable income. 

We’d need details of the stuff that you spend on. So that includes:

• rent/mortgage

• food

• travel expenses

• child maintenance

• mobile phone bills

• utilities

• council tax

• clothes

• hobbies/socialising

Will also need details of the money coming into your house.  This includes wages from any and all jobs that you have, as well as benefits and any help that you may receive from family or a partner. 

After we’ve got all those details down, it may be the case that we can offer some simple budgeting advice and that would actually help you deal with your debt problem yourself. So for instance, you might be able cut down on your utilities bills by switching to cheaper provider or find another, or find a cheaper way to pursue your hobby, freeing up enough money to cover your debt repayments and your other essential living costs.

Giving us a call to tackle your debt problems is a step in the right direction, and you may find that getting a few of these key budget-building numbers ready, or some paperwork relating to these areas of your life, will really help you during the call.

 

find-my-solution

How your budget can impact which debt solution is right for you

As we said, there will be those of you that will benefit so much from paying careful attention to your budget that you find managing your debt repayments is no longer a problem. 

On the other hand, there are some people that still won’t be able to afford their debt repayments even if they were to cut back here and there. No debt problem is unsolvable, and if you fall into the second camp you may find that there’s a debt solution out there that’s right for your circumstances. 

Each debt solution comes with its own advantages and disadvantages and each is designed to help people in a particular situation. That’s why, if you’re looking into starting one, it’s so important that you get your budget right to begin with. Let’s look at some examples:

A Debt Relief Order (DRO) is a debt solution designed to help people who assets of low value, and who also don’t have a lot of money to put towards their debts month to month. In order to qualify for a DRO you can’t have more than £20,000 in debt, you can’t have more than £50 in disposable income every month and you can’t have assets worth more than £1,000 or a car worth more than £1,000. 

The main benefit of a Debt Relief Order is that payments towards your unsecured debts are suspended for a year. After that time, if your situation has not improved, they will be written off allowing you to start a financial recovery debt-free. 

Now, say you calculated your budget incorrectly and did not take an essential payment into account, child maintenance payments for example. You’d find that your budget wouldn’t accurately reflect how much you’ve got going out and how much disposable income you’ve to put towards your debts. This could mean that, even though a DRO was the right solution for you, your incorrect budget would stop you from qualifying. 

It’s also important that you get your budget right, so that you don’t run the risk of falling behind on any of your payments. Let’s imagine that a DMP was the right solution for you. If you had unsecured and secured debts you’d need to factor in the secured payments – such as your mortgage - when you’re working out how much money you have available to put towards your DMP. If you didn’t, then you could potentially find yourself in a situation where you couldn’t afford to pay your mortgage – which is actually more important that keeping up with your unsecured repayments as if you defaulted you run the risk of losing your house. 

Talk to experts to make sure your budget is right

We understand that budgets can get complicated and everyone can make mistakes sometimes. If you speak to us we will make every effort to make sure that the budget we work out for you is accurate. It’s really important that you let us know what your income and expenditure is to the best of your knowledge, but rest assured that if anything seems out of place we’d raise the issue before recommending a solution for you. 

For example, if you mentioned that you had a child but did not mention child benefit, or your food bill seemed unusually low for someone with dependents, we may point this out to make sure that the number you’ve provided is right. 

So now you know how important it is for your financial future to get your budget right. If you’re struggling with debt and putting your budget together, you may find it helpful to seek the advice of a trained debt specialist. After going through a few things you’d know for sure whether your debt problems could be solved with a few changes to your budget or whether you need a debt solution. If you do need a debt solution then we will recommend the best solution for you, based on your budget and personal circumstances. Just use the options on the left of the page to speak to a debt expert today and find out what’s right for you. 

 

by Christine Walsh

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To find out more about managing your money and getting free debt advice, visit Money Advice Service, an independent service set up to help people manage their money.