Setting priorities when money is tight

When money’s extra tight we need a clear and simple budget to help us plan. Setting a budget also helps us anticipate bigger things – holidays, children, expenses and transport – while keeping, we hope, day-to-day arrangements humming.

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What should I budget for, apart from food?

Your mortgage or rent, as well as payments for your TV licence, child support, utility bills and council tax, should be put at the top of your budget list.

Next is what economists call ‘unsecured debt’ – that’s money you owe other than mortgages - such as monthly car loan payments or credit cards and student loans.

We also increasingly rent goods and services rather than buy outright, whether that’s music, our phone and online needs, or transport. And we eat out more than we did too.

All this means more modest and higher value sums now leave our bank accounts each month, compared to the past. In truth, the picture is even more complex thanks to UK wage stagnation and rising electricity and gas inflation.

How much negotiation power do I have?

Perhaps more than you think.

There’s little any of us can do about Bank of England interest rates or rising food price inflation.

But if you’re renting, do haggle. Haggling is really negotiation and it’s standard practice for almost all deal-making. If you have good references and a sizeable deposit, then you’ve got the upper hand.

It’s also in your power to strike a better deal when a contract is up for renewal. Shop around to reduce the interest rate on your credit card or get a better insurance deal on your home or car. Because this is all online it also de-personalises the ‘haggle factor’.

Be confident and strike a deal

If you’re negotiating for a better insurance or mobile deal, ask to speak to the company’s retention team, not the sales team.

Many retailers make their real profits on add-ons like extended warranties and peripherals. Bargain hard on those if you want them. It’s pointless haggling on a £500 computer if it cost a retailer £480 to buy it into the shop.

Away from big business, many small, independent shops run on super-fine margins, so choose your moment here. And always be polite. Getting emotional reduces your power to change a situation.

Food bank support – there if you need

In January 2019 the UK’s Environmental Audit Committee estimated that almost 20% of under 15-year-olds live with an adult who is struggling to buy food. There are also rising numbers of people in work who now rely on food banks.

If you feel your situation is precarious and you’re getting close to needing a food bank – school holidays can be a pressure point – check online to see if there are any independent local ones where you can go without a referral (which is generally needed).

Alternatively, Citizens Advice can help with a referral, which normally involves some questions about your situation.

The Trussell Trust is the UK’s biggest food bank network. Local churches and other organisations may also be running an independent food bank close to you. If you’ve got special dietary requirements – diabetes, for example – most organisations should have someone who can cover your needs.

If you’re in a position to give to a food bank, give your local one a call first and find out direct what they’d like.   

Priorities if things turn bad - what you need to know

You can’t go to prison for not paying a non-priority debt, payday loan, personal loan or a store card. “For these you could be taken to court or your credit rating go down,” says Jamie Smith-Thompson of investment company Portafina.

But if you don’t pay your rent or mortgage you could lose your home, and if you don’t pay your electricity, you’ll be cut off.

What’s more, if you don’t pay your TV licence, child support, council tax or a magistrate fine, this could result in imprisonment - but only as a last resort, adds Smith-Thompson.

If money is really tight, make sure you focus on the most important payments first.

Any prison sentence for a non-payment of debts must be heard in a Magistrates’ Court.

Bottom line legal basics

The bottom line is that a court will not send you to prison if you can’t afford to pay. They should only do so “if they think you have deliberately refused or 'neglected' to pay when you could have done so,” says National Debtline.

But there may be circumstances where you simply can’t stump up the money and you’ve completely run out of road, debt-wise. This could be due to a drop in household income, a relationship breakdown, a new baby, illness or other debts you are paying, acknowledges the agency.

“This is why it is important to take a detailed personal budget to court and not be frightened to tell the court if you have other debts to pay.”

Six tips to live cheaper

  1. Check your energy bills: they may be an estimate. Get an accurate reading. You could be paying too much, or if your bills are too low, you could be underpaying and you risk a much-larger demand for payment
  2. If you have a spare room get a lodger: the Treasury allows you up to £7,500 a year tax-free from renting out a bedroom. If you can’t bear the thought of it full-time, consider a Monday-Friday let
  3. Find a side hustle: it might be walking dogs or turning a hobby into a tiny side business. Or even doing useful errands for neighbours
  4. You don’t need a new kitchen: consider painting those tired pine or oak panels and update them with new handles. You’ll be amazed at the difference
  5. Walk or cycle where you can: it’s also a great cardio workout
  6. Eat porridge for breakfast: oats are filling, healthy – and cheap

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