Budget planner
Click here to download the budget planner
One of the reasons we all find dealing with our finances so difficult is because most of us don't really know how much we have or how much we spend: we have no idea what our current financial position is and we are too frightened to find out - just in case we don't like what we see. However this is one area where we really have to get a grip. It isn't particularly hard to create a snap shot of your current financial position and it really isn't that boring either: if you are the kind of person who makes lists, who gets a kick out of completing a task or suddenly having a tidy desk you may well actively enjoy working out where you stand when you get down to it.
If you aren't you may find it a bit of a chore, but once its done you'll be very pleased with yourself. Why? Because you'll have taken the first step towards making your money work for you. If you don't know how your finances currently stand how can you possibly know where to go with them next? Once you do know you are well on the way to making your money work for you over the long term - to making not a source of anxiety but a source of peace of mind.
What I've done is make two tables for you to fill in. Once done they will - together - tell you exactly what you've got and suggest what you should do next. The first helps you to make a proper list of what you make and what you spend every month. All you have to do is put in the numbers and they'll all be added up for you. You may not know the real answers to some of the spending bits right away. Do you really know how much you spend in the pub each month for example? Given this it might be worth taking a week or so over filling in the spending bit of the form - keep a spending diary over the week and then transfer the numbers from that into your table. You also need to be sure you get all the numbers you need in correctly- bills paid once a year such as house insurance and car insurance need to be divided by 12 so they are accounted for each month. The same is true of things such as holidays and anything else you pay for sporadically. When you come to do the income part of the chart make sure you put in the income after tax not before - there's no point in adding in a sum you will never actually see. You will end up with three final figures on this chart - what you spend, what you earn and the difference between the two.
Once that is done you need to fill in the second form - this will tell you how much you are worth today. If you liquidated all your assets and paid off all your debts this is what you would have left.
So what do all these numbers tell you? Well clearly if you can see from the first form that you spend more than you earn you've got a problem already. Is it easily solvable? Maybe. Look at all the columns that I've put little stars after. These are the ones you don't need - you need to pay your rent (no star) but you don't need regular manicures (star). So if you take out most of the starred expenses do you still spend more than you earn? If yes you need to go further. Can you cut your expenses further? Can your mortgage be moved to a better rate or your utility suppliers changed for example? Or can you perhaps get your income up? Can you ask for a raise, take in a lodger or even et a second job. Even if your spending only outruns your income by a few pounds a month you really need to think about how you are running your money - a few pounds a month adds up to real debt a great deal sooner than most of us think. Note too that overspending can sometimes be a matter of saving too much - is the fact that you are saving regularly or paying into a pension regularly meaning that you are going into debt every month? If so you may be better cutting down your savings and getting rid of your debt instead - sometimes it is best to take care of today before you think of tomorrow.
If you find you are earning more than you are spending you are obviously doing better than some but you may not be in the clear. How much is the 'on your debt' section of your spending as a percentage of your total spending? If it is more than 15-20% (not including mortgage) I think you have a debt problem so whether you are managing to cover that debt or not you still need to take a look at the way you are dealing with your finances. You also want to look at what you can do to increase the surplus of your income over your spending. If your numbers look ok but the pensions and saving payment columns on your chart are empty you probably shouldn't feel too smug - you might be taking care of today just fine but the future doesn't look too good does it? You need to get your surplus up because it is this surplus that should be spilling over on to the second chart in the form of increased savings and investments - the things that can give you long term security and financial freedom. A basic rule of thumb on the second chart is that your assets must be worth more than your debts. If they aren't you're insolvent and that's not good. In an ideal world your net worth (your assets minus your debts) would be enough to give you a sense of freedom - ie if you sold everything and paid off all your debts there'd be enough left over for you to live in a beach hut in Thailand without working for 10 years. If it isn't you need to do your utmost to get the surplus on the first chart up so you can create that kind of freedom on the second.
