Financial statements: a brief guide
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National_Debtline
Posts: 7,998 Organisation Representative
Hello all,
Here’s a brief guide to financial statements. I hope you find it useful! If you have any questions feel free to post them. I’m keen also to learn of your hints and tips around budgeting.
An accurate, comprehensive financial statement plays a vital role when dealing with your debts. The key reason is that it will allow you to make fair, reasonable and affordable offers of payment to your creditors. More importantly, it allows you to have sufficient money from your income to cover your important outgoings such as housing costs, utility bills, food, clothing and travelling expenses. Here is a brief guide highlighting a few important tips as well as dispelling a couple of myths that come up from time to time.
It is important to note that these tips generally cover arrangements such as self-negotiation, debt management plans, some individual voluntary arrangements and debt relief orders. Although some of the key principles may be the same, there could be slightly different rules if you are considering petitioning to make yourself bankrupt, or if you want to make an arrangement to pay a court order. We have a guide giving a brief overview of all debt options on our website: http://www.nationaldebtline.co.uk/england_wales/debt_advice.php#7
Why is a financial statement so important?
If a creditor can see that your offers of payment are fair and reasonable they should give those offers serious consideration. It is possible to get your creditors to accept lower offers of payment and to consider freezing the interest and any charges.
The financial statement we (and many other advice agencies) use has a standard format. There are two main steps. The first is that you would complete a full financial statement. This is broken into various sections such as essential spending, housekeeping, telephone, travel costs and ‘other spending’. The second principle is that you can calculate the totals in each of these sections and transfer these totals on to a more concise ‘budget summary’ which you would then send to your creditors. If you would like to see an example of the two sheets, please follow these links:
http://www.nationaldebtline.co.uk/england_wales/pdf/personal-budget-sheet/your-personal-budget-sheet.pdf
http://www.nationaldebtline.co.uk/england_wales/pdf/personal-budget-sheet/budget-summary-for-creditors.pdf
You can also complete a financial statement which allows you to post your figures here in the Money Saving Expert forums. This allows others to comment on your budget. This budget is in a slightly different format but it’s good nonetheless:
http://www.stoozing.com/calculator/soa.php
Do I have to send my creditors a financial statement?
There is no legal obligation to send your creditors a copy of your financial statement. However, sending a financial statement is highly recommended as it can show your creditors that your offers of payment are fair and reasonable. A creditor is unlikely to accept a lower offer of payment without proof that it is affordable.
Do I have to list my partner’s income on my financial statement?
If you have joint debts then a joint financial statement is likely to be necessary. If the debts are just your own, then in theory you could list your income and your share of the household outgoings. A joint financial statement often gives a far more accurate picture of the situation – this could mean that your offers of payment are more realistic.
Do I have to include Disability Living Allowance/Attendance Allowance or Personal Independence Payments on my financial statement?
The short answer is no, you do not have to list any of these benefits as income if you do not wish to. These payments are regarded as an allowance to help with health-related costs. You can list the amount you receive as income and then deduct all (or some) of it as a health-related outgoing. A creditor should not insist that you use this money to pay debts; if they do, consider making a formal complaint.
What about Income Support, Job Seeker’s Allowance and Employment and Support Allowance?
All of these benefits are regarded as income and should be listed.
Can I list what I like in my outgoings?
Anything that you would reasonably expect to pay each month should be listed. It is important to bear in mind that your creditors may reject a budget if you are paying for items which could be viewed as luxuries. There is no definition of ‘luxury’, a creditor will be more interested in whether your overall figures are reasonable.
Can I spend what I like?
There are guideline figures known as ‘trigger figures’. Whilst these figures are not generally in the public domain there are some helpful guidelines in relation to housekeeping costs on page 18 of our ‘Dealing with your debts’ guide, which you can find here: http://www.nationaldebtline.co.uk/england_wales/pdf/self-help-pack/step-2-working-out-your-personal-budget.pdf
What if I do not always spend the same amount each week/month on groceries?
The aim of the financial statement is to help you budget. It is vital that the figures you list reflect what you actually spend. Although the statement may not be an exact science it is important to try and stick to your figures as closely as possible. Consider monitoring what you spend over a few weeks to help you work out precisely how much you might need. You could make a note of your grocery spending for a week weeks to work out what your average might be.
Can I spend money on smoking?
Yes you can. Any figure that is spent on smoking would fall under general housekeeping costs. Items such as clothing, pet food, newspapers, magazines and baby-related costs all fall under this umbrella too. So long as your overall ‘housekeeping’ figure is reasonable, your creditors should give your budget serious consideration.
Can I spend money on a TV or internet package, or how about my gym membership?
Yes you can. All of these fall under the umbrella of ‘other spending’. As long as your overall figure is reasonable, your creditors should give your budget serious consideration.
I pay my TV licence/car insurance straight away. How do I work this into my financial statement?
If you pay some of your bills annually (or quarterly), you should break the amount you pay in to monthly amounts and include them within the financial statement. For example, an annual TV licence of £145 should be divided by 12 = £12.12. A quarterly gas bill of £150 should be divided by 3 = £50.
I pay for my bank account, how do I show this in my financial statement?
If you pay a monthly fee for your bank account please ensure that you are getting value for money. Check to make sure that you use the features that you are paying for. Also check to ensure that you cannot get these services cheaper elsewhere. If you use the features you can place your bank charge within the ‘other spending’ category on your financial statement. If you are overdrawn you should include the overdraft as a non-priority debt. You must move your current account to a new ‘safe’ bank. This is an organisation that you do not owe any money to. This means that your existing creditors will not be able to automatically take money out of the account. If you are frequently being charged for going overdrawn, or for any direct debits that get returned, it is likely that you are not budgeting as well as you could be.
Where do I list my loan, credit card and catalogue payments?
You do not list these within the outgoings section of the financial statement. The reason is that the money you are left with once you have worked out all of your essential outgoings will be divided up amongst your debts. This figure is called your ‘surplus’. There is one exception, which are catalogue debts. Generally these would be regarded as non-priority debts, however if you use a catalogue to buy your clothes you can keep one account open if it is your usual source of shopping.
Best wishes,
David @ NDL.
Here’s a brief guide to financial statements. I hope you find it useful! If you have any questions feel free to post them. I’m keen also to learn of your hints and tips around budgeting.
An accurate, comprehensive financial statement plays a vital role when dealing with your debts. The key reason is that it will allow you to make fair, reasonable and affordable offers of payment to your creditors. More importantly, it allows you to have sufficient money from your income to cover your important outgoings such as housing costs, utility bills, food, clothing and travelling expenses. Here is a brief guide highlighting a few important tips as well as dispelling a couple of myths that come up from time to time.
It is important to note that these tips generally cover arrangements such as self-negotiation, debt management plans, some individual voluntary arrangements and debt relief orders. Although some of the key principles may be the same, there could be slightly different rules if you are considering petitioning to make yourself bankrupt, or if you want to make an arrangement to pay a court order. We have a guide giving a brief overview of all debt options on our website: http://www.nationaldebtline.co.uk/england_wales/debt_advice.php#7
Why is a financial statement so important?
If a creditor can see that your offers of payment are fair and reasonable they should give those offers serious consideration. It is possible to get your creditors to accept lower offers of payment and to consider freezing the interest and any charges.
The financial statement we (and many other advice agencies) use has a standard format. There are two main steps. The first is that you would complete a full financial statement. This is broken into various sections such as essential spending, housekeeping, telephone, travel costs and ‘other spending’. The second principle is that you can calculate the totals in each of these sections and transfer these totals on to a more concise ‘budget summary’ which you would then send to your creditors. If you would like to see an example of the two sheets, please follow these links:
http://www.nationaldebtline.co.uk/england_wales/pdf/personal-budget-sheet/your-personal-budget-sheet.pdf
http://www.nationaldebtline.co.uk/england_wales/pdf/personal-budget-sheet/budget-summary-for-creditors.pdf
You can also complete a financial statement which allows you to post your figures here in the Money Saving Expert forums. This allows others to comment on your budget. This budget is in a slightly different format but it’s good nonetheless:
http://www.stoozing.com/calculator/soa.php
Do I have to send my creditors a financial statement?
There is no legal obligation to send your creditors a copy of your financial statement. However, sending a financial statement is highly recommended as it can show your creditors that your offers of payment are fair and reasonable. A creditor is unlikely to accept a lower offer of payment without proof that it is affordable.
Do I have to list my partner’s income on my financial statement?
If you have joint debts then a joint financial statement is likely to be necessary. If the debts are just your own, then in theory you could list your income and your share of the household outgoings. A joint financial statement often gives a far more accurate picture of the situation – this could mean that your offers of payment are more realistic.
Do I have to include Disability Living Allowance/Attendance Allowance or Personal Independence Payments on my financial statement?
The short answer is no, you do not have to list any of these benefits as income if you do not wish to. These payments are regarded as an allowance to help with health-related costs. You can list the amount you receive as income and then deduct all (or some) of it as a health-related outgoing. A creditor should not insist that you use this money to pay debts; if they do, consider making a formal complaint.
What about Income Support, Job Seeker’s Allowance and Employment and Support Allowance?
All of these benefits are regarded as income and should be listed.
Can I list what I like in my outgoings?
Anything that you would reasonably expect to pay each month should be listed. It is important to bear in mind that your creditors may reject a budget if you are paying for items which could be viewed as luxuries. There is no definition of ‘luxury’, a creditor will be more interested in whether your overall figures are reasonable.
Can I spend what I like?
There are guideline figures known as ‘trigger figures’. Whilst these figures are not generally in the public domain there are some helpful guidelines in relation to housekeeping costs on page 18 of our ‘Dealing with your debts’ guide, which you can find here: http://www.nationaldebtline.co.uk/england_wales/pdf/self-help-pack/step-2-working-out-your-personal-budget.pdf
What if I do not always spend the same amount each week/month on groceries?
The aim of the financial statement is to help you budget. It is vital that the figures you list reflect what you actually spend. Although the statement may not be an exact science it is important to try and stick to your figures as closely as possible. Consider monitoring what you spend over a few weeks to help you work out precisely how much you might need. You could make a note of your grocery spending for a week weeks to work out what your average might be.
Can I spend money on smoking?
Yes you can. Any figure that is spent on smoking would fall under general housekeeping costs. Items such as clothing, pet food, newspapers, magazines and baby-related costs all fall under this umbrella too. So long as your overall ‘housekeeping’ figure is reasonable, your creditors should give your budget serious consideration.
Can I spend money on a TV or internet package, or how about my gym membership?
Yes you can. All of these fall under the umbrella of ‘other spending’. As long as your overall figure is reasonable, your creditors should give your budget serious consideration.
I pay my TV licence/car insurance straight away. How do I work this into my financial statement?
If you pay some of your bills annually (or quarterly), you should break the amount you pay in to monthly amounts and include them within the financial statement. For example, an annual TV licence of £145 should be divided by 12 = £12.12. A quarterly gas bill of £150 should be divided by 3 = £50.
I pay for my bank account, how do I show this in my financial statement?
If you pay a monthly fee for your bank account please ensure that you are getting value for money. Check to make sure that you use the features that you are paying for. Also check to ensure that you cannot get these services cheaper elsewhere. If you use the features you can place your bank charge within the ‘other spending’ category on your financial statement. If you are overdrawn you should include the overdraft as a non-priority debt. You must move your current account to a new ‘safe’ bank. This is an organisation that you do not owe any money to. This means that your existing creditors will not be able to automatically take money out of the account. If you are frequently being charged for going overdrawn, or for any direct debits that get returned, it is likely that you are not budgeting as well as you could be.
Where do I list my loan, credit card and catalogue payments?
You do not list these within the outgoings section of the financial statement. The reason is that the money you are left with once you have worked out all of your essential outgoings will be divided up amongst your debts. This figure is called your ‘surplus’. There is one exception, which are catalogue debts. Generally these would be regarded as non-priority debts, however if you use a catalogue to buy your clothes you can keep one account open if it is your usual source of shopping.
Best wishes,
David @ NDL.
We work as money advisers for National Debtline and have specific permission from MSE to post to try to help those in debt. Read more information on National Debtline in MSE's Debt Problems: What to do and where to get help guide. If you find you're struggling with debt and need further help try our online advice tool My Money Steps
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Comments
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I get paid weekly/fornightly - how to I change this into a monthly amount?
If you get paid weekly multiply your figure by 52 (this will give you an annual figure) and then divide by 12 to get your monthly figure.
If you get paid fortnightly you would multiply by 26 and divide by 12.
Using these calculations will give you a more accurate figure to place within your budget.
You can also use the same calculation if you pay for things weekly/fortnightly, or if you do your grocery shopping weekly etc.We work as money advisers for National Debtline and have specific permission from MSE to post to try to help those in debt. Read more information on National Debtline in MSE's Debt Problems: What to do and where to get help guide. If you find you're struggling with debt and need further help try our online advice tool My Money Steps0
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