Toolkit 1 Budgeting for Life

Transcription

1 Toolkit 1 Budgeting for Life

2 What is a Budget and why is it Useful? What is budgeting? Budgeting is a way to understand our own money situation including the money we have coming in and the money we have going out to help us be in control of our finances. A budget is a plan for managing money which lists our income (all the money we have coming in) and our expenditure (all the money we have going out) to help organise our money. Why budget? Devising a budget can help us to see where our money is going and make it easier to make savings for unexpected emergencies. It can help us make better decisions about our spending and worry less about money. For some a budget is the first step to take when struggling with debt and can help creditors to see exactly what money they have and if any is available to make towards repayments. Who should do it and when? Anyone with an income and outgoings should make a budget. Individuals can do one on their own or as a household depending on how finances are managed within the home, or with your help a Money Champion. How to develop a budget: The best way to plan a budget is to make it run alongside the time period in which money comes into the household. If money comes in monthly it makes sense to budget for the month. But it is also helpful to keep weekly spending diaries too so that it is all broken down into manageable pieces. One of the first things to do to work out your total income: include any benefits, allowances, earned income, etc. Then focus on expenditure: To do this it is useful to keep receipts or a diary of any money spent (no matter how small) over a week, month, etc. A Budget Sheet can be used to help work out income and expenses. Then deduct the spending from the income. The Budgeting Steps sheet explains this in greater detail.

3 How to Develop a Budget: Budgeting Steps A tool for Money Ensure that you are working in ALL monthly or weekly figures according to your main income cycle.

4 Budgeting Calculations How to Calculate Monthly & Weekly Figures; Conversion Explanation Sum How to calculate calendar monthly figures: Weekly to monthly To convert weekly to monthly payments multiply the weekly amount by 52 then divide by 12 to get the calendar monthly figure. weekly amount x 52 weeks 12 months Quarterly to monthly Four weekly to calendar monthly Multiply the quarterly amount by 4 and then divide by 12 to get the calendar monthly figure. Multiple the 4-weekly amount by 13 and then divide by 12 to get the calendar monthly figure. quarterly amount x 4 quarters 12 months 4 weekly amount x months How to calculate weekly figures: Monthly to weekly To convert monthly to weekly payments multiply the amount by 12 and then divide by 52 to get the weekly figure. monthly amount x 12 months 52 weeks

5 What Do You Spend Money On? You can use the list below to help you to work out your total spend for your budget (Step 2 of creating a budget). The types of things people typically spend money on include the following: Rent/Mortgage and housing costs (like rates, home insurance etc.) Housekeeping (food, toiletries, cleaning products, pet food etc.) Gas, electricity, logs, and home heating oil TV licence Clothing School costs (travel, uniforms, stationary, books, fees, trips, meals) Childcare costs Phones (landline and mobiles) Transport costs (car, public transport, fuel and associated costs like insurance, tax, mot, servicing) Satellite or cable TV Loans and Credit payments Pets (vet bills, pet care, food) Insurance such as buildings insurance, contents insurance, car insurance, pet insurance, life assurance, critical illness cover and so on Holidays, entertainment and social costs (e.g. gym membership, socialising, books, magazines) Healthcare (e.g. dentist, private healthcare) Savings and emergency money for unforeseen circumstances.

6 What Does Your Budget Look Like? You may have an ok budget or your budget may not be ok. Healthy budget: Coming in Going out More money coming in than going out: This is the ideal situation to be in. If you are in this situation you should take this opportunity to save money for unexpected expenses. OK budget: Coming In Going out As much money going in as coming out: If you are in this situation your budget is ok, but you could think about cutting out-goings or increasing income to enable you to save for unexpected expenses. Unhealthy budget: Coming in Going out More money going out than coming in: If you are in this situation your budget is not ok. you need to take action to reduce expenses and/or maximise income where possible. If you are struggling with debt we would advise seeking debt advice.

7 What Can You Learn From Your Budget? When you have drawn up your budget and can see what it looks like, consider the following: Which of the expenses on the list cannot be changed i.e. they are fixed such as rent? Which of the things on the list are essential and/or really needed (e.g. food, rent, electricity, gas)? Which things on the list are non-essential and not really needed? Which of the things on the list could be cut back on (e.g. use less electricity, only purchase essential items of clothing etc.)? Which of the things on the list could be done without (e.g. cancel a gym membership, charity subscription, etc.)? You can use highlighter pens to identify these. There are 2 ways to try to improve a budget: 1. Decrease out-goings (see budgeting tips and priority spending) 2. Increase income (see income maximisation) If your budget is in deficit seek immediate specialist advice!

8 Decrease Out-goings: Budgeting Tips 1 The following budgeting tips may be useful: Utilities: See if there is a cheaper utility provider in your area. Visit price comparison websites to compare prices of gas and oil suppliers in your area. Also, consider a pre-payment meter to help you manage utility payments. Telephone: Look to see if you could reduce your telephone bills by switching to a better deal, for example one that offers free evening and weekend calls. Mobiles/Internet: To look for the best deals on your mobile and internet packages, visit one of the impartial price comparison sites available on the internet. Also, remember to cancel any mobile phone insurance once your contract has ended. Satellite/Cable TV: Contact your supplier to investigate the options available to reduce your subscription to the minimum package. Or you could switch to a cheaper or free supplier, for example Freeview. Vehicle Expenditure and Transport: Are all the vehicles in your household essential? Could you sell a car if it is not needed on a day-to-day basis. Are there cheaper forms of transport that you could reasonably use e.g. public transport, cycling, walking? If you use public transport look at the local deals e.g. monthly passes, and look to see if you are entitled to free or discounted travel e.g. the over 60 Smartpass. Food, Toiletries and Cleaning: You could look to switching to own brand products or making use of special offers that are available in the supermarket. Cover the basic food needs first and then think about what you can spend on the things you want rather than need. Meals at Work: In general it works out cheaper to take your own lunch. Check your Bank: Make sure you are checking your bank account regularly and that there is enough money to cover any direct debits or bills. Use Cash: Using cash will help you control your spending as you can only spend what you have. Shop Around: Use price comparison sites. If you want to buy something, decide if it is something you just want or something you need. Shop around at stores and online to find the best deals. Always check receipts to ensure you have not been overcharged or charged twice for the same product. Cut Back on your Spending: You don t need to make big changes to your lifestyle to save money. Cutting back on the little things you buy can make a big difference. For example, if you spend 2.00 on a sandwich every day this adds up to 54 every month. Deal with Your Debts: If you have debts and are struggling to pay them you should contact one of our debt advisors immediately. Different options may be available depending on your circumstances. 1 Source: Adapted from Debt Action NI Budgeting Tips Leaflet

9 Check Your Direct Debits: If you pay things by direct debit make sure you know what you are paying for. Check you aren t still paying for any services you don t use any more. Mortgage/House Insurance: If you own your own home you may be able to shop around for cheaper mortgage repayments or cheaper house insurance. Make sure that you consider the fees involved in this as there may be transfer fees required. Loans or Credit Cards: If you have money on loans or credit cards shop around for cheaper rates. Some credit card companies offer 0% interest for the first 6 months on balance transfers so it might be useful to transfer the balance and then shop around again when the 6 month period is coming to an end. Save Energy: Consider ways that you can save energy in the home to reduce utility bills such as gas, electric and oil. See Energy Saving Tips. Rent: If you are renting a home is it possible to move to a cheaper property e.g. with fewer bedrooms or a cheaper location? Remember that if you were to move to save money you would need to factor in the cost of moving. Second Hand Items: There are various places to pick up good quality second hand items at cheap prices and in some cases for free. These include car boot sales, internet auction sites, local papers and advertisers, charity shops, second hand shops, and internet sites for free item such as Free-Cycle ( Group Discounts: Some suppliers such as oil suppliers will provide discounts for group and street deliveries. Various on-line sites can be joined which provide offers/discounts based on group bookings such as Groupon. Budget for One-Off Expenses: Some expenses only happen occasionally, like Christmas and holidays. Work out how much you will spend in the year on these, divide that amount by 12, and put the money away each month until the expense or bill is due. Save Money: You should consider saving some money every month as this will help you budget for any emergencies, or will help you plan for a secure financial future. Even if you only save a small amount each month you will find that it quickly adds up.

10 Prioritise Spending Priority expenses and debts will differ between people. However, there are certain essentials that we should all consider. These include essentials in regard to basic needs and essentials with regard to sanctions/risks involved with not paying e.g. eviction. Basic needs that we should try to meet include: Food (e.g. groceries and electricity/gas to cook this) Shelter (e.g. rent/mortgage) Warmth (e.g. oil, gas, electricity, coal, logs) Clothing (e.g. essential clothes and shoes) The following table below shows the things that are identified as priorities by debt advisers and those we borrow money from due to the sanctions/risks involved. Priorities Outlined by Debt Advisers 2 Mortgage Priorities Consequences of Non-Payment Rent Secured Loan Rates Child Maintenance TV License Magistrates Court Fine Tax, VAT, National Insurance County Court Judgement Gas, Electricity, Fuel Hire Purchase Telephone Key Repossession Eviction Attachment Prison Fine Order Bankruptcy Disconnection Repossession of earnings Charging Land 2 Source: Image by Stepchange (CCCS) Adapted from

11 Non-Essential Spending: We are usually all guilty of spending money on non-essentials, often without realising it! These may be small items such as a daily cup of coffee, an impulse buy in the supermarket, or giving into a child s request for a treat. While this may be small amounts of money on individual items it can add up to large amounts, particularly over a monthly or yearly period. Example: In the last week Sean bought the following items on impulse which he doesn t really need! 1. 5 x cups of coffee on his way to work (1.50 each day!) Chocolates on offer at his local supermarket 4 3. Sweets in petrol station A magazine for his son Lunch out with colleagues x 2 12 Total: Total amount Sean spent on unnecessary items in 1 week If he spends a similar amount each week this would total a month ( x = ) and 1, a year. Try it for Yourself: List 5 non-essential items your bought in the last week and work out how much it has cost you in one week and potentially over 1 year: Item Cost Weekly Total Annual total (Weekly total x 52)

12 Income Maximisation 3 The following tips may be useful to help you to increase your income: Get a job/work extra hours: If possible look for an additional job where you could work parttime to help increase your income. Alternatively, you could try to increase your hours at work. Some companies will offer paid overtime. It may be useful to do this on a short-term basis to put your finances in order. Wages: If you are working you should check that you are being paid the National Minimum Wage. You can check this on the HMRC website Check your tax band: Make sure that you are paying the right amount of tax. If you are registered blind you are entitled to an extra tax allowance. You can call HMRC on , to check your tax code. Tax Credits: You may be entitled to Tax Credits if you are on a low income or pay childcare costs for dependent children. If you think you might be entitled to Tax Credits call the Advice NI Tax and Benefits helpline on Benefits: Check you are claiming all the benefits that you are entitled to. For a full benefit entitlement check contact Advice NI on or If you are on a low income, or claiming Income Support, Job Seekers Allowance, Employment Support Allowance or Pension Credit you may qualify for help from the Financial Support Service ( ). Help with housing costs: Even if you own your own home you may be entitled to help with housing costs through Rates Relief. If you rent your home and are on a low income you may be entitled to housing benefit to help towards your rent. Help with health costs: You may be entitled to free or reduced health costs depending on such things as your income or age. This can include such things as dental care and optical care. Ask for board/rent: If you have adult children living with you, ask them to make monthly payments towards the cost of running the home. Child Maintenance: If you have children from a previous relationship you may be able to claim maintenance. For further information see Child Maintenance Choices at Maximising your home s value: If you have a spare room in your home, you may consider taking in a lodger. Renting out a room may not be a suitable option for everyone but it can bring in a large amount of money each year. Depending on the area you live in, such as a city centre or near a university or college, you can almost cover the cost of your mortgage payments by simply renting out a room. If you are considering this option then check with your mortgage lender or landlord and see if permission is required. 3 Source: Adapted from Debt Action NI - How to Maximise your Income

13 Downsizing to maximise income: Another option to consider is selling your home and downsizing to a smaller house or flat. This could be an option if you have enough equity on your home to make it worthwhile and if your home has now become too big (for example, if family members have moved out). Charities and benevolent funds: There are various charity and benevolent funds available to help people in need. Turn2Us has a grant checker which will show entitlement based on your circumstances. For further information visit Food banks are also available across Northern Ireland for those in severe hardship. Home efficiency and improvement grants: Check if you are entitled to any home efficiency or improvement grants such as the Warm Homes Scheme. For further information about grants and schemes available visit the Energy Savings Trust Find a Grant, available at Selling items: To maximise your income on a short-term basis e.g. to cover an unexpected expense you may consider raising money by selling items that are surplus to your requirements, for example, on on-line auction sites, car-boot sales, or local advertisers and papers. This may also be a good way to tidy up the house! IMPORTANT: Also remember that any income generated may have a bearing on any benefits you receive. You should check whether you have to pay tax on this income.

14 Switching Providers & Tools: In the past Northern Ireland Utility providers were extremely limited but now there are a multitude of companies offering lower prices if you switch your service. Regularly switching utility and insurance providers for the best price can help you save hundreds each year. There are a number of sources available to help you decide which provider would be the cheapest for you. Organisation Tool Overview Link Consumer Council Enigry.info Power to Switch Uswitch Cheapest Oil Comfused.com Compare NI Compare the Market Go Compare Money Supermarket Energy Price comparison tool Domestic Power costs comparison tool Energy Tool Internet Tool Oil Price Tool Tool Tool Tool Tool Compare Gas and Electricity prices in NI Compare Gas and Electricity prices in NI Compare Electricity provider prices in NI Search for high speed broadband and costs by postcode Home heating oil price comparison Comparing Insurance/Utility Prices with multiple suppliers Comparing Insurance/Utility Prices with multiple suppliers Comparing Insurance/Utility Prices with multiple suppliers Comparing Insurance/Utility Prices with multiple suppliers Comparing Insurance/Utility Prices with multiple suppliers ergy-price-comparison/ *Many sites will run a quick credit check, this will result in a soft search registering on your credit file

15 Energy Saving Tips 4 The Energy Saving Trust provides 10 top tips for changing habits to help people to save energy and in turn reduce energy costs: Turn your thermostat down. Reducing your room temperature by 1 C could cut your heating bills by up to 10% and typically saves around 65 per year. If you have a programmer, set your heating and hot water to come on only when required rather than all the time. Is your water too hot? Your cylinder thermostat should be set at 60 C/140 F. Close your curtains at dusk to stop heat escaping through the windows and check for draughts around windows and doors. Turn off the lights when you leave a room. Don't leave appliances on standby and remember not to leave laptops and mobile phones on charge unnecessarily. If possible, fill up the washing machine, tumble dryer or dishwasher: one full load uses less energy than two half loads. Only boil as much water as you need (but remember to cover the elements if you're using an electric kettle). A dripping hot water tap wastes energy and in one week wastes enough hot water to fill half a bath, so fix leaking taps and make sure they're fully turned off! Use energy saving light bulbs. They last up to 10 times longer than ordinary bulbs, and using one can save you around 50 over the lifetime of the bulb. This saving could be around 130 over its lifetime if you're replacing a high wattage incandescent bulb, or one used for more than a few hours a day. Do a home energy check Get advice from experts such as the Energy Saving Trust about how you can save on your household energy bills. The Energy Savings Trust resource Change your habits room by room is a useful online resource to help you save money. It provides handy tips about how to save energy in each room in your house. There is also an on-line resource to do a free home energy check available at The following diagram below provides additional energy (and money) saving ideas. See For more information on energy grants available Source: Adapted from Energy Saving Trust