At school we learn many different mathematical skills, but unfortunately they don’t teach budgeting money. Consequently it’s easy, especially in today’s world of readily available credit, to let your finances spiral out of control. £20 a month may not seem very much to pay for a new sofa, but unless you read the small print, you probably won’t have realised that if you only pay the monthly £20 minimum, with interest you will be paying for that sofa for years to come.
Having realised your mistake in taking out hire purchase contracts to buy items like this, you may have been advised to release equity from your property and remortgage your home, or to take out a personal loan in order to consolidate a number of smaller debts. Now you have one large debt payment, which means less money to spend and so you may again find yourself in the position of having been tempted into making a bad financial decision by running your credit cards up to their maximum limits, or taking out store cards to buy things you want but don’t have cash to buy.
If this is the position that you now find yourself in, you really need to start budgeting money to ensure that not only are these existing debts paid on time each month, but also that you begin to make better financial decisions. Do you know how much money you owe? Think about it carefully. How many debts do you have? How much do you owe on them? What’s the minimum monthly payment that you must pay on each debt? How much of that monthly payment comes off the debt and how much of it is added interest? Make a list with all of this information and highlight the debts with the highest levels of interest. These are the debts you need to start paying extra on so that you can start to reduce the amount you owe.
Once you know how much you owe each month for all of your expenses, you can start making a budget. Total all of your monthly payments for your debts and house expenses such as mortgage and electricity. What’s left is your living budget for the month. If possible you should try to pay extra off at least one debt with a high interest rate. Otherwise, try to get into the habit of saving 10% of your living expenses monthly, which can go towards your debts.
As you start to finish paying off your debts, use the money you’ve been using and put into a savings account for nice financial cushion. You’ll soon see that budgeting money isn’t about not spending, but rather about making smart financial decisions based on the money you have available.