Household Budgeting Part of Any Good Debt Advice

Personal Financial Budgets, an Essential Element of Managing Debt

Apr 18, 2009

Total personal debt in the UK, at the end of February 2009, stood at £1,458bn but how many people considered household budgeting as a way to get out of debt?

With indebtedness in the UK again rising it is inevitable that many people will be looking for ways to balance their household budget. In order to understand the exact level of deficit (or surplus) a detailed household budget should be completed.

Financial Budgeting

Good debt advice would always recommend financial budgeting as the first step in resolving debt problems. Individual Voluntary Arrangements (IVA) or Protected Trust Deeds (Scotland) or indeed bankruptcy, are much more painful options, and should never be considered until a budgeting exercise has been done. It’s only by going through the budgeting process that people can make a balanced decision on whether this is a viable route for them or whether further action is needed.

Total Personal Debt

For many people it will be the first time they have written down their all their debts to get a total debt figure. It’s a time to be honest, don’t underestimate, make sure everything is included.

Managing Money

The next step is to write down all the other family outgoings, again be honest, it’s important to understand what all the family income is being spent on. Earnings have now got to be listed, again make sure that everything is listed: wages (make an estimate of potential overtime payments), state benefits, tax credits and any other source of income. If there is access to a computer that has a spreadsheet program, that’s a good way of listing all the outgoings and earnings. If there’s no computer the same exercise can be created on paper.

Of course people don’t necessarily spend or earn by the month, it may be weekly, annual or in the case of self-employed people, income might be ad hoc, in which case an estimate has to be made but make it as accurate as possible.

Manage Debt

Set out the columns to reflect the family income and spending patterns, give them appropriate headings, and enter the figures. Make sure there is no duplication, if for example there is car insurance listed under the car heading ensure it’s not listed under the insurance heading as well. To make it easier the weekly spend and income columns can be turned into monthly spend and income by multiplying the figures by 52 and dividing by 12.

Priority Debts

With accurate figures now available it’s now possible to see whether the outgoings are greater than the income. If they are, where can savings be made? Certain debts must be treated as priority, for example: mortgage, rent, income tax and council tax, by not paying these the consequences can be severe. Hard decisions taken on trimming certain expenditure: food, holidays, entertainment and other treats might just make the difference between making ends meet and slipping further into debt.

The organisations listed below can help those looking for free and independent budgeting or financial planning advice.

Free Debt Advice

The information in this short article is not exhaustive and does not constitute financial advice.

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