Need help with budgeting

Confusedbybanks

Thanks! You've been so helpful! I think we have just been spending the remainder of our monthly income on what is needed at the time, such as haircuts, clothes etc but just never budgeted for any of it. As I said, when we were both paid monthly we were fine as we could just see clearly what was left for the remainder of the month but now it is clearly time for us to learn to budget! I'll make the changes you've suggested. I've been thinking of what we do spend our money on and making budgets for each of those outgoings, although I think we will build up a buffer first. Thank you again.

EssexHebridean

First off this is absolutely the right way to do it -0 you start fro where you['re at right now, that enables you to work out what's wrong, then as you change things you tweak the SOA which effectively forms your budgeting document for the time being - and that means your spending diary comes in even more useful as it helps you to track where the money is really going!

Comments in red...

Confusedbybanks wrote: »

Thanks again for all the tips. So here is mine and my husbands joint SOA. I've just included our outgoings and not added in any budgeting for extras apart from food because that's how I'm dealing with money (clearly unsuccessfully!) at the moment. Any help welcome!

Statement of Affairs and Personal Balance Sheet

Household Information
Number of adults in household........... 2
Number of children in household......... 0
Number of cars owned.................... 1

Monthly Income Details
Monthly income after tax................ 1517
Partners monthly income after tax....... 1160
Benefits................................ 0
Other income............................ 0
Total monthly income.................... 2677

Monthly Expense Details
Mortgage................................ 0
Secured/HP loan repayments.............. 0
Rent.................................... 895
Management charge (leasehold property).. 0
Council tax............................. 131 Check whether you pay this over 10 months currently, and if you do switch it to over 12 months instead as that helps with budgeting.
Electricity............................. 40 This is quite high for a couple - check you are on the best tariff for this and the gas, and also focus on using less - sop turning off things that aren't in use rather than leaving them on standby, changing to low energy lightbulhbs and not leaving lights on when you're not in the room are all good starting points..
Gas..................................... 44 Check where your thermostat is set to make sure heating's not coming on when you don;'t need it. In the winter instigate a "no bare arms & legs" policy, so you put on a jumper first and only then decide if the heating needs to go up a bit.
Oil..................................... 0
Water rates............................. 37 This could be cheaper for you metered if a switch to a meter is possible.
Telephone (land line)................... 0
Mobile phone............................ 70 2 mobiles? This is high - check when contracts are up, look to switch to SIM only and budget savings for replacing phones when actually needed rather than just wanted.
TV Licence.............................. 12.83
Satellite/Cable TV...................... 30
Internet Services....................... 29.99 The TYV and internet combined is high - if you're out of contract it could be worth a "you're too expensive" call to your provider.
Groceries etc. ......................... 300 You can certainly bring this down a good chunk! First though check this really is what you
Clothing................................ 0 Go back over bank or card statements to work out how much you spend here, then reduce it a bit while you still have debt.
Petrol/diesel........................... 0 Go back over bank or card statements to work out how much you spend here
Road tax................................ 17.06 Are you paying this monthly? If so you need to budget now to pay upfront for next year as you pay a premium for a monthly DD.
Car Insurance........................... 0 I certainly hope you pay something here?! If you have paid the current year's upfront you need to start setting aside money NOW to make sure you have enough when renewal time hits. Also check you're on the best value policy for you before renewing, and NEVER accept your renewal quote at face value.
Car maintenance (including MOT)......... 0 Again - this is something you need to start setting money aside for.
Car parking............................. 0
Other travel............................ 105 Can this be reduced at all by sharing more car journeys as you're paying for the car anyway?
Childcare/nursery....................... 0
Other child related expenses............ 0
Medical (prescriptions, dentist etc).... 23.5 Can this be reduced by use of a pre-paid certificate for prescriptions?
Pet insurance/vet bills................. 0
Buildings insurance..................... 0
Contents insurance...................... 0 Again if you currently pay this annually start to budget ready for renewal. same rules as the car insurance re renewing too!
Life assurance ......................... 0
Other insurance......................... 0
Presents (birthday, christmas etc)...... 0 Sit down and agree what you feel is reasonable top spend over a year and start budgeting monthly for these spends
Haircuts................................ 0 Again you need to factor this in to your overall picture
Entertainment........................... 0 A combination of debit./credit card statements and looking at cash withdrawals might help you sketch some figures in here.
Holiday................................. 0 You need to consider whether you have anything planned, if not whether you want to. Think about long weekends away, trips to see friends or family as well as longer breaks, and budget accordingly, then stick to those budgeted figures.
Emergency fund.......................... 0 Again this is something you need to factor in for the future.
Total monthly expenses.................. 1735.38


Assets
Cash.................................... 0
House value (Gross)..................... 0
Shares and bonds........................ 0
Car(s).................................. 400
Other assets............................ 0
Total Assets............................ 400

No Secured nor Hire Purchase Debts

Unsecured Debts
Description....................Debt......Monthly...APR
Barclaycard....................1813.21...40.8......0
RBS............................386.81....6.66......0
Tesco..........................8318.08...83........0
Loan...........................1187......89........24.9 Ouchy - that's an eye watering rate
Overdraft house acc............1000......20.24.....0
Overdraft personal ac..........500.......7.3.......0
MBNA...........................1790......25........0
Total unsecured debts..........14995.1...272.......-


Monthly Budget Summary
Total monthly income.................... 2,677
Expenses (including HP & secured debts). 1,735.38
Available for debt repayments........... 941.62
Monthly UNsecured debt repayments....... 272
Amount left after debt repayments....... 669.62 Yes, but a lot of things not accounted for currently as you know. However bottom line is that currently there is OVER EIGHT THOUSAND POUNDS each year that you need to establish where you've been spending it.

Personal Balance Sheet Summary
Total assets (things you own)........... 400
Total HP & Secured debt................. -0
Total Unsecured debt.................... -14,995.1
Net Assets.............................. -14,595.1

OK - so I'd suggest that for you, job number 1 is tracking down the spends in areas where you can, and then working out what you REALLY have in the way of a surplus each month.

Are you still using credit cards at all? If you are you need to stop that now. On the debt front for me the focus needs to be getting rid of the overdrafts first and foremost as these are what we often call "dangerous debt" as they can be recalled by the bank at no notice. In the longer term that loan should probably be a focus as it's a low balance relatively speaking and the rate is high - that assumes that a) you can either overpay it or pay off early with no penalty and b) that the cards are definitely at 0% though.

I'd suggest:
1) Spending diary
2) Really focus on "needs" not "wants" - take a look at Martin's spending mantra on the main site and live by that.
3) Track down actual spends for the categories where you know you do spend, but have nothing in the SOA currently.
4) Live for a few months letting the card & loan payments carry on ticking on, but adding nothing to the overall debt and living within your means to get to a position where the budget balances - during this time any surplus at the end of a month needs to go to reducing the overdrafts.
5) Once you're happy that the budget is right for you, and the OD's are clear, either overpay or save money against clearing the loan early. At the same time make sure you know when the o% rates on the cards will end and either look to switch to new deals or put a plan in place to get those cleared as next priority if deals aren't available.
6) Rinse and repeat - when the debt is gone your surplus starts creating a savings pot for the future.

EssexHebridean

Confusedbybanks wrote: »

I think the hardest thing for me is still that I get paid monthly and he gets paid weekly. When we were both paid monthly life was much easier and we never worried about finances. Even if I budget specific amounts of money for specific things, the budget won't be on money that is there at the start of the month - we'll only have half of that and a bit more is added each week. I'm thinking as I type really - would it be best to budget a sizeable amount to just topping up our bank account so that we are ahead of bills for next month?

Do any of your debts pre-date that change? If so I'd challenge whether in fact it was you failing to worry about finances THEN which have created the problems.

Are there any things that you pay regularly where a change in Direct Debit date might help you though? Usually councils etc offer several options of dates during a month - for a while the OH was paid end of the month and I was paid mid=-month so I still have a number of DD's now that come out on the 15th rather than in the first week.

Alternatively budget that your pay covers the monthly stuff, his covers the less prescribed bits like food, fuel etc.

Something that might help would be to set up several online savings account from your main bank account to shift savings for various things in - for example car expenses could go into one, holidays into another, presents into a third and etc. We find that works really well and it's far simpler than needing to keep track of proportions of the money in a larger lump sum which should be allocated to all the various "pots"

aimeemum

My advice is to use your monthly wages for Monthly bills, use the weekly wages for on-going spending (food, fuel, weekly expenses) and any surplus in both pots at the end of the week/month goes into savings/towards debts. Keep a diary/cut out EVERYTHING that is a 'luxury' and go right back to basics for everything. Your husband must be on board too for this to work. This is how we work our finances and it works on the most part. We've managed to live within budget and pay off just shy of £3k of debts so far this year (since January). Be realistic and honest about your situation and be prepared for the long haul.

BookmobileBadGirl

Another option if the weekly is really causing problems, is to use that left over money from the SOA into a new bank account (that he also has his wages paid into)

Then set up a direct debit from this new account so that say on the 28th of each month his "monthly wage" is paid.

getmore4less

The main point have been covered but no harm in going over them a gain.

A budget is a plan of how you want to distribute the income.

Best to have the plan as a minimum of 12 months initially and add in any know bigger costs that will need saving for.

The SOA format is a good starting point as it breaks this down into 12 equal pots and has a population of most of the regular categories.
If any one category includes too much it can be split.
eg. groceries includes the discretionary alcohol spending, some like to separate out that from food(a bit more of an essential).

Once you have the plan the next trick is to track you are spending how you wanted too.
this is where the spending diary comes in record everything.

This is where the SOA can fall down a bit as the spendings for a lot of things is not monthly, but the key is to track the yearly totals for each category.

What happens is if you are overspending to the plan(budget) you adjust the plan, by rebalancing, if it is something you forgot you add it.


When the money comes in and goes out is a cash flow issues and the trick is to stick to the plan, which can be adapted to manage the cashflow.

The monthly weekly pay is not the root cause of the problem, its the plan(will have a look at that next)

One trick often used is to treat weekly pay as 4 weeks per month, after a years you should have 4 weeks worth saved up as a buffer(or spent covering the things missing from the plan.

MSMoney(FREE) is still probably the best planning/reporting tool out there, but for the tracking side there are better if you want to manage daily.

MSMoney also has a built in cashflow tool to see where the cash in will not meet the cash out so you can plan that as well.

I find that with MSMoney a mix of the auto entry and manual entry helps with the visualization of the bigger picture as you have to think about it more, initially weekly/monthly updates/review will get on top of the situations quite quickly as long as you keep the plan balance.

..........................................
We are at the end of June now.

one useful exercise can be to do a retrospective review of the last 12months.

Your SOA has £32k*** coming in if you did a full year(July18-June19) in a full year SOA, can you account for £32k, some items will be easy like the rent and bills
some will require a trawl through statements some will be guesses

Can you get the year to balance and account for everything by getting.
Amount left after debt repayments.......0

most can't so trying to remember what you spent on will help develop the current years plan


***The real spend amount needs to include the change in debt over the period. your income is £32k but if debt went up you spent more than that if it went down less..

getmore4less

Confusedbybanks wrote: »

Thanks! You've been so helpful! I think we have just been spending the remainder of our monthly income on what is needed at the time, such as haircuts, clothes etc but just never budgeted for any of it. As I said, when we were both paid monthly we were fine as we could just see clearly what was left for the remainder of the month but now it is clearly time for us to learn to budget! I'll make the changes you've suggested. I've been thinking of what we do spend our money on and making budgets for each of those outgoings, although I think we will build up a buffer first. Thank you again.

That is the spend it till it runs out model, no plan.

The advantage of a plan that covers a full year is it means you don't have peaks of surplus when there are fewer bills and it just gets spent.

I won't pick over the the SOA for savings as that has been done.

The key thing is to find that missing money, where is it going.
the spending diary will help a lot and often just recording stops some spending as you think twice before letting the money go

I think you would really benefit from the where did it go last year by doing a review.

Even if you don't have hard data just yet you can makes some good guesses
Petrol/diesel........................... 0
Road tax................................ 17.06
Car Insurance........................... 0
Car maintenance (including MOT)......... 0
Other travel............................ 105

This is the first one I would populate is the car, they can be money pits, often the costs are fairly regular trips topped up by the odd extra, should be possible to get that fairly close.

IT might be you don't use it much but guess it is old(£400) so might need replacing at some point cuurently you have no capacity to do that.
Long shot could you manage without a car till you are back on top of things, even if you keep it and SORN for 6 months it might just help if not then this needs populating.

Clothing................................ 0
IT is possible to not spend for a while but unsustainable long term.
Either have a plan to buy minimal and use that for now or go with the average of spending last year and see if you can manage with less.
If you have time a clothes audit can be useful to plan what you need to buy in the next 12 months, then the trick is to stick to it.

Entertainment........................... 0

Another that is possible but not sustainable.

Allocate yourselves some fun money, I would use a guess from last 12months and try to stick to it, remember it is a full years worth so you don' have to spend it month by month you can have regular spends(couple of beers on a Friday) and some bigger ones meal out every 3 months.

Some things can be difficult to categorise, I mentioned alcohol tends to get lumped in with groceries but another one that can be a money pit is fastfood/takeaways, is that groceries or entertainment.

I like to have a separate category for that as we fell into the trap of a regular Friday curry(I Have done this one loads of time before).
once the budget was analysed we realised that we could have another holiday if we reduced it to less often,
result an extra holiday and a curry we enjoyed much more the few times a year we had it.

Look for habitual spends that are not giving you value or satisfaction.
often people have the work lunch/coffees out in this category because they are only a few quid so don't count.
many work 260 days a year whenever you do a daily spend on a work day multiply by 260(or *100/4 close enough an easy)


One more thing is if not sure enter on the high side but try to stay under, a plan that is underestimating is harder to balance when the real numbers start to come in from the spending diary than one that has been on the generous side.

getmore4less

There is a lot going on and the priority is understanding where the money goes as currently there is none left and we need to help you fix that.

Looking ahead a bit I think you need to start formulating a plan for the debts.

As has been said initially just keep paying the minimums and try to stop using the cards and OD if you can.

first step is to dig out all the true cost and time lines

Unsecured Debts
Description....................Debt......Monthly.. .APR
Barclaycard...................1813.21....40.8........0
RBS...............................386.81.....6.66.......0
Tesco...........................8318.08...83...........0
Loan.............................1187.......89.........24.9
Overdraft house acc........1000.......20.24......0
Overdraft personal ac........500.........7.3.......0
MBNA............................1790........25.........0
Total unsecured debts....14995.1....272.......-

What are the charges on the two OD is there interest or daily etc.
these can be come very expensive debts when the charges are not done as APR, if you have those it would help priortise.

Are they all really 0% if so when do the 0% run out and what will the follow on rates.

DO any of the cards have room to shuffle money, if they do what are the charges?

Does the loan have any penalties for paying it off early, that is a high rate and might be better to tackle that sooner once the picture is becoming clear as that is costing over £20pm in interest?

enthusiasticsaver

You have already had lots of advice on the soa so I will not go over that again. I can see that your salary just about covers the essential bills on the soa and the debt repayments. Presumably though your DH gets paid around £267 a week based on that £1160 per month? How much of that goes into the family pot as I am not quite sure exactly what you mean by "rent money"? If he is keeping some back then that soa is incorrect as the whole £1160 which in itself is a low wage is not going into the pot.

There are obviously gaps in the soa as others have mentioned and a spending diary is a good way to go on that. Your essential bills and debt repayments come to £1561.82 if the soa is correct (minus groceries, travel, road tax and medical). If your husbands weekly wage is £267 then I would use that to build up a buffer in your current account and allocate that to various pots each week. Food, travel, personal spending for you and DH for clothes, haircuts, entertainment etc, car expenses and a debt overpayment pot and emergency savings. They can either go into actual pots like cash envelopes or use separate accounts. Some people have had success using the new app only banks like Monzo or Starling. Get used to the current account only being used for bills and debt repayments and focus on living within your husbands weekly wage.

Re the debts. Tackle the overdrafts first and stop spending on the cards. You have a decent surplus so once you get to grips with this you should be able to manage. At the moment though I think the "extras" are probably more than you think they are.

Confusedbybanks

Dear all,

Thank you again for all your advice. It's been incredibly helpful and a bit of a life changer! I'm halfway through my first month of budgeting and have become a bit obsessed with it! I've been using the Emma app to allocate budgets to each category of my spending and track it daily.

Emma tracks your spending for the last three months so it's helped me to see that that the biggest waste of money was on food due to poor planning. I always do a big shop at the start of the month but was then topping it up at local, more expensive shops, over the course of the month because we ran out of cereal or something else I'd only bought one of at the start of the month. Now I spend more on my big shop to cover absolutely EVERY meal and snack for the entire month (which actually only came to £130) and then we only need to top up on milk for the rest of the month). And having a food budget stops me nipping to the shops for milk and then adding a little something extra to the basket when it's not necessarily needed.

It's been useful to work out what I need to allocate to the categories that I previously had at £0 such as clothes, entertainment, haircut. Now it feels like a treat to have money to send towards self-care. Usually I would just go without and then splurge every 3 or 4 months which clearly wasn't working well. I've also allocated an emergency fund and money towards paying off my overdraft. My only uncertainty is whether to keep the emergency fund and add to it or whether I should put that towards the overdraft if I've not had to use it by the end of the month? I've been getting emails from YNAB (not using the app as yet but the emails are very useful) and it mentions having an emergency budget so if, for example, the car needs fixing, then I don't need to spend on a credit card again, so it seems wise to keep the emergency fund set aside.

Hubby is on board with the budgeting too and the good news is that last week he was offered a new job which pays about twice as much as his last one! We will both continue to budget when he starts his new job but he's going to allocate more towards paying off debt and building a buffer up in the house account so great news! I think his low income highlighted the fact that our previous money spending ways were not working so it was a blessing in disguise as has helped us to change our ways for the better.

It feels great to have a plan and an order to paying off the overdrafts, then loan then credit cards. So thank you again!! It now feels really achievable whilst still having money to spend on other things each month and not having to go without. I'll update my soa at the end of the month as should have a more accurate idea of realistic spending and budgeting needs.