Working out a personal budget

In this article, National Debtline offers help working out a personal budget, to allow people to keep track of what money is coming in and going out, meaning they can show creditors exactly what they can afford to repay.

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A personal budget is an essential tool to help you tackle debt problems. This will help you work out how much you have coming in and what you are spending. You can then see how much you have left over to pay off your debts.

You can start to record this information on the personal budget sheet.

Why should you do a personal budget?

Working out a personal budget is important because it helps you:

  • see how much money is coming into your household
  • see how much money is going out
  • see how much money you have left
  • work out affordable offers to creditors
  • plan your future spending

Remember weekly or monthly

Remember to fill in either weekly or monthly figures on your budget sheet – whichever suits you best. Don’t mix the two. To work out a weekly payment on a monthly basis, multiply the payment by 52 and divide by 12.

Do not mix up weekly and monthly budget figures. Stick to one or the other when you are filling in your budget sheet.

To change weekly figures to monthly figures
Weekly figure x 52 (weeks) divided by 12 (months).

To change monthly figures to weekly figures
Monthly figure x 12 (months) divided by 52 (weeks).

To change four-weekly figures to monthly figures
Four-weekly figure x 13 (payments) divided by 12 (months).

Filling out your personal budget sheet

Step 1 – money coming in (income)

Add up the income for you and your household. Include the following:

  • Wages and salary after deductions (normal take-home pay). Only include overtime if it’s regular. Check with your local tax office that you have the right tax code.

  • Benefits and tax credits including Child Benefit.

  • Contributions from other people who live in your home such as grown-up children and elderly relatives (known as non-dependants).Try to make sure that any nondependent is paying enough towards the household expenses.

  • If you are on a low income, you may be entitled to money which you are not claiming, such as Income Support, Pension Credit, Jobseeker’s Allowance, Employment and Support Allowance,Working Tax Credit, Child Tax Credit, Housing Benefit or Council Tax Benefit.

  • If you are sick or disabled, you may be able to claim a range of disability benefits.

Step 2 – money going out (outgoings)

Work out with your family how much money you have to spend each week on basic living expenses. At this stage don’t include any debts or arrears or any credit payments.

Mortgage. You will usually pay it monthly. To get a weekly figure, multiply the amount by 12, and then divide it by 52.

Rent. Check whether you are entitled to any Housing Benefit (rent rebate).

Council Tax. Check whether you are entitled to Council Tax Benefit. You normally pay Council Tax in 10 monthly instalments, but some councils will accept payments every week, or two weeks. If you live alone then you will be entitled to 25% off your instalments.

Water rates. Most water companies will accept payments every month, every week or every two weeks. It is important to keep up with your ongoing water rates bills.

Gas and electricity. Work out the cost of your last four bills. Divide this by 52 if you are preparing a weekly budget, or 12 if monthly. Gas and electricity cost less ifyou pay by monthly direct debit from a bank account. If your heating bills are very high, ask about the Home Energy Efficiency Scheme (HEES) Some fuel companies help with cheap fridge-freezers or light bulbs. Check with your supplier.

Housekeeping. This should include food, toiletries, cleaning materials, newspapers and so on and a small amount for entertainment and other spending. A rough guide would be as follows.

Weekly housekeeping budget:
Single person £37 to £50
Couple £62 to £78
Each child £20 to £35
Non-dependant £25 to £35

Monthly housekeeping budget:
Single person £160 to £217
Couple £270 to £338
Each child £87 to £152
Non-dependant £108 to £152

You may find your total housekeeping bill is less than these figures if you have a larger family and bulk-buy and so on. Your non-dependant may cost more depending on their age.

Other amounts and emergencies. This should include irregular outgoings like birthdays and Christmas, house repairs and maintenance, and a ‘cushion’ against emergencies.

Either build it into the housekeeping figure or list it as a separate item on your personal budget. Be prepared to explain this figure to your creditors who may question it, if it is quite high.

TV licence. Allow £3 a week for a colour licence (£12 a month) and £1 a week (£4 a month) for black and white.

Magistrates’ court fines. These are a priority and you should include them in your essential outgoings. They are different from county court judgments, which you should include with credit debts.

Maintenance. Include voluntary payments and any payments ordered by the court or Child Support Agency.

Travelling expenses. These should include travelling to work, school and for shopping. If you are running a car, include tax, insurance, repairs, MOT and servicing as well as petrol.

Hire-purchase cars. If you need a car for work or for mobility reasons (and you have bought the car using a hire-purchase type arrangement), you will need to include these payments in your normal ‘outgoings’ or you may lose the car.

School meals. Check to see if you are entitled to Income Support, income-based Jobseeker’s Allowance or Pension Credit. If so, you can claim free school meals. You can also claim if you receive Child Tax Credit, work less than 16 hours a week, and your income is below a set amount.

Prescriptions, dental treatment and sight tests or glasses. The rules are different depending on whether you live in England or Wales. Prescriptions are free in Wales for everyone. If you live in England you may have to pay.

Contact your local advice agency, Department for Work and Pensions or contact the Help with health costs advice line on 0845 850 1166 to see if you qualify for free prescriptions and help with other health costs. If you cannot claim free prescriptions, you may be able to reduce the cost by buying a prepayment certificate.

Health costs. Make sure you include any extra costs you have because of an illness or disability. This might be due to a special diet, extra clothing, bedding, special equipment, help in the home or extra costs as well as prescriptions.

Clothing. As a rough guide, allow £3 to £5 for each person each week. Don’t forget the costs of school uniform. Only include non-dependants if you pay for their clothing.

Remember that your council may help with the cost of school clothing. This will depend on your circumstances.

Phone. Only include your ongoing bill.

Remember

It’s your budget. Your household’s outgoings may be different from our guidelines. You may have extra expenses because of your circumstances, such as a special diet, extra transport costs due to a disability or you live in a rural community, the cost of a uniform for work, or regular payments you have to make because of your religion.

It is your personal budget, so the figures should be your own. Be careful! If you don’t take account of extra expenses (or if your figures are much below our guidelines), you may find it more difficult to stick to any long-term repayment plan. This could lead you into greater difficulties.

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