Planning your Personal Finances
As many households around the UK struggle with balancing their income and outgoings and the number falling into unmanageable levels of debt increases, some of these could have been avoidable with early action.The most important step to avoiding debt is by careful planning ahead and ensuring that what is coming in and what needs to go out is all taken into account. Receiving an unplanned bill often leads to taking out more credit in order to pay for it, a vicious cycle of debt.
Many households never sit down and actually plan their finances, but just pay bills as and when they arise. However, this means that the amount left over after essential expenses are paid is never calculated, which can lead to overspending and inevitably financial difficulties.
Working out a budget may sound like a daunting task but in reality it is no different than what most people manage in their heads every month. To start with, work out how much money comes into the household, including benefits, wages and any other kind of payment. For those that don`t receive a fixed income, take an average but estimate at the lower end of what is likely to be received to avoid being caught short.
Then simply list all of the outgoings and remember to include absolutely everything from bills to petrol to lunch costs. Doing this can sometimes highlight that the household expenses amount to more than the money available. If this is the case, revisit the list and see where the amount can be reduced. For example, could you walk rather than take the car to reduce petrol costs? Could you take a packed lunch to work rather than spend £5 in the canteen each day?
To start with it is also a good idea to budget to pay just the minimum on bills such as credit cards, until you are able to establish how much money is left over. If there is spare, then go back and increase the repayments - it is always a good idea to pay more than the minimum if possible as it helps improve credit ratings as well as reduces the amount of interest payable. However, rather than spreading a little extra thinly across several debts, it can be good idea to focus on the one with the highest interest rates and pay the extra money onto this account to try and pay it off as quickly as possible. Some people prefer to concentrate on the debt with the smallest amount so the number of outstanding accounts reduces more quickly but this is more of a psychological boost than financial.
To avoid getting into financial difficulty in the longer term, the best plan is to set up a savings pot and put a little bit away each month, no matter how small as it can be surprising how quickly money can mount up. Having a nest egg can provide a financial buffer for any unexpected expenses which arise and do away with the need for further credit.
There are many online tools which can help and the government have just launched a free scheme, the Money Advice Service, which enables the public to get a free health check and identify what their goals are. Individuals are then automatically provided with an action plan which shows the best way to achieve their financial aspirations.
To really make your money work the hardest for you, it is a good idea to keep an eye on deals which arrive on the market which may be better and consider remortgaging or switching credit card providers in order to make the pennies stretch further.
However, to really get the best out of your money saving money is the key as it prevents the need for costly credit. Unfortunately, the interest rates on savings accounts are fairly low right now so it is worth researching the different options available to get the best returns.