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Step 3 - Completing a personal budget
The next step in dealing with your debts is to draw up a personal budget. As boring as it may sound, your personal budget is the single most important tool you have to help you get to grip with your finances and deal with your debts.
Once completed, your personal budget will provide you with a complete overview of your current financial situation, showing where you get your money from, what you spend your money on, how much money you owe, who you owe it to, and how much you can afford to pay them (if any at all!).
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Working out a personal budget is an essential practice in dealing with any debt problem and will not only help you to decide on the most appropriate strategy to use in tackling your debts, but it can also be used as a negotiating tool when dealing with your creditors. Even if you’re not in debt, making a personal budget is a good way to keep in control of your spending.
Using the debtline-online budget calculator
With the debtline-online budget calculator, completing your personal budget couldn’t be easier. Over the next few pages, we will give you instructions on how to successfully complete your personal budget.
Don’t worry! There are no hard sums to be done, as the debtline-online budget calculator will do all of the hard work for you. All you will need to do is follow the on-screen instructions and enter your information in the spaces provided.
Please click here to activate the online budget calculator
Once you have activated the online budget sheet, you can start entering your personal details. In order to carry on using this site while the budget sheet is in use, simply minimise (reduce) the budget sheet window, and carry on moving around this site using the links provided.
Please make sure that you do not close the window until you have completely finished all four pages of your personal budget, or any progress that you have made will be lost! Also, make sure that you print each page as you go along, or if you don’t have a printer, write down your details on a piece of paper, or again, any progress you have made on a previous page will be lost, once you move on to the next page.
Before you move on to the next step, try activating the online budget sheet and having a play around with it to familiarise yourself with how out works. Once you are happy with how it works, you can start to complete your personal budget sheet.
Calculate your total income
The first step in completing your personal budget is to list and calculate what regular money (your ‘income’) you have coming in to your household. By income, we mean any money that you receive, either through a job you do, the benefits you claim, etc. You will need this information for two main reasons:
1. So you know exactly how much money you have to spend and where it comes from, and;
2. So you can if there is any way of increasing the amount of money you have coming in (we will deal with this a little later).
When calculating your income, it is important that you record all of you figures as accurately as possible. In order to do this, you should use whatever documentation you have to copy your figures from. Such documents may include:
- Your last 4 to 5 payslips
- Your Benefit or Pension books (and any letters relating to them)
When you are completing your personal budget, try to enter your figures as either a weekly or a monthly amount, whichever suits you best. However, try not to mix the two up or your budget will not work effectively.
Generally speaking, if you get paid on a weekly basis – enter all of your figures using weekly amounts. If you get paid on a monthly basis – enter all of your figures using monthly amounts.
You should list all your sources of income on your budget sheet and the amount you get. Once you have completed your list, you should add all of the amounts together to calculate your ‘total income’.
If you are using our budget calculator, clicking your mouse on the ‘calculate’ button at the bottom of the first screen will do the calculations for you. You should make a note of your income list before moving on – click on the ‘print’ button to print the page (or if you don’t have a printer, write down these details on a piece of paper).
Calculating your total expenditure
Once you have calculated how much income you receive on a regular basis, your next step is to list and calculate how much money you spend (your ‘expenditure’) on your day-to-day expenses over the same period – that is, if you calculated your income on a weekly basis, then do the same for your expenditure. If you calculated your income on a monthly basis, then do the same for your expenditure.
It is important to note that, at this stage, you should include the necessary repayments to maintain the ongoing commitments to your priority creditors (such as your mortgage repayments), but you should not list any of arrears (missed payments), debts or credit payments. Instead, you should include the details of the following expenses:
- Housing costs – such as rent or mortgage payments, service charges or ground rent, water charges, council tax, secured loan repayments, insurance cover costs, etc – and be sure to include a small amount to cover the costs of any essential repairs or emergencies
- Utility costs – should include gas, electricity or other fuels, such as oil or paraffin, that you use
- Living expenses – such as your food shopping, prescriptions, toiletries, cleaning materials, nappies (if you have children), laundry costs, etc – you should also include a small amount to cover items of clothing, footwear and other irregular expenses that may come up
- Childcare costs – not only should you include the costs of any childcare that you may pay for, such as a nursery or childminder, but you should also include the costs of school uniforms, school lunches, etc
- Travel expenses – such as the cost of fuel, insurance, tax, MOT’s, servicing and general maintenance of a car or motorbike (if you have one), bus, train and taxi fares
- Television costs – such as the costs of a TV licence. If you don’t have one, get one! The cost of a television licence will do less damage to your situation than the £1,000 fine you’ll get if you’re caught without one. Also, if you rent your TV or video equipment, you should include the rental costs.
- Emergency fund – you should also include a small amount to cover the costs of any emergencies or irregular payments, such as people’s birthdays and Christmas, any unexpected events
You should try to keep your expenses to a minimum, but remember, you are going to have to stick to your budget, so make sure the amounts you include are realistic and reasonable, but not excessive. Once you have listed all of your regular expenses, you should add them together to calculate your ‘total expenditure’.
You now need to subtract your total expenditure away from your total income to calculate what money (if any) you have to pay your debts after your basic living expenses.
Do not panic if your total expenditure is more than your total income – this is quite common if you’re in debt.
If you are using our online budget calculator, clicking your mouse on the ‘calculate’ button at the bottom of the first screen will do the calculations for you. You should make a note of your expenditure list before moving on – click on the ‘print’ button to print the page (or if you don’t have a printer, write down these details on a piece of paper).
Your next step in completing your personal budget is to list and calculate your debts. Once you have completed your income and expenditure list, you will need to work out your priority debts – please click here to continue
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