Eastbourne Citizens Advice Bureau

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Eastbourne Citizens Advice Bureau Financial
Literacy
BUDGETING
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Definition of budget noun 1 an estimate of
income and expenditure for a set period of time.
2 the amount of money needed or available for a
purpose. 3 (Budget) an annual statement of
national revenue and expenditure put forward by
the Chancellor of the Exchequer. verb
(budgeted, budgeting) allow or provide for in a
budget adjective inexpensive
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Understanding budgeting Budgeting isnt something
that only politicians do. Understanding how to
budget is the key to getting to grips with your
money and keeping control of your finances. Once
you have set out the basics a little time each
month is all you need to keep on track.
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Formula
Basically.
Income
minus -
Expenditure
equals
Disposable income
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Income and expenditure The idea of budgeting is
to add up all the money you have coming in over a
set period of time. If you get paid weekly or
monthly it is best to do the calculation on that
basis. Then you work out all the expenses you
will have during that period. You subtract the
expenses from your income and see what you have
left. The remainder is your disposable income
which you can do with as you please. Knowing the
difference between essential spending and
non-essential spending helps you avoid getting
into difficulties.
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Income and expenditure calculator One of the
tools we use to help people budget is an income
and expenditure sheet. This can be done as a
handwritten list or by using a spreadsheet. The
income and expenditure form is available as an
Excel Spreadsheet and as a pdf file.
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We begin by completing the figures for income.
You may have different sources of income to those
listed. Everything should be added up. The key to
completing both income and expenditure is to
stick to either weekly figures or monthly
throughout, whichever you prefer.
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Then we look at expenditure, the amounts we spend
regularly. The list shown here is a guide to help
you remember the main expenses. If you have other
expenses not listed remember to add them.
Feel free to add any additional expenses you
think of.
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Disposable income Once we have totalled up
everything we subtract the expenditure figure
from income. This shows us how much money we have
at the end of each month, often referred to as
disposable income.
When we have spent money on essentials what we
have left at the end of the month is ours to do
with as we please. Hopefully this figure will be
a positive amount. However when our spending is
more than the money we have coming in, this
figure will show as a negative quantity.
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Overspending It may seem impossible to spend more
money than you have coming in, but many people do
it. It means they are using money from other
sources, such as drawing on their savings or
borrowing from family and friends. Or borrowing
from a bank, building society or finance
company. Borrowing money can be a safe and useful
thing to do but without a good idea of how much
is coming in and out of your pocket, you can soon
get into difficulties. Budgeting helps you avoid
this.
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Budgeting example 1 Lets look at an example
Jim is 23 years old he has a full-time job that
pays him 850 a month he has no other income.
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Budgeting example 2 Jim rents a flat for 350 a
month and that includes all bills. He does have
to pay for a TV licence that costs 10 a month.
Jim estimates he spends around 100 on food
and household items and about 50 a month on
clothes. He doesnt have his own car yet and he
spends 80 a month on bus and train fares. He
spends around 50 a month on his mobile phone and
around 60 a month on cigarettes. At a guess he
spends about 100 a month on various things like
CDs and socialising. Lets total those figures.
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So 850 income minus 800 monthly spending
leaves Jim . . .     50 is left at the end of
each month.
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Budgeting results 1 Putting everything on paper
has shown Jim that his financial situation is OK,
perhaps a bit better than he realised. Hes not
overspending and still has something left over at
the end of each month which he could put into a
savings account. He can also see certain things
which he could reduce, such as how much he spends
on clothes, mobile phone and cigarettes all
non-essential spending.
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Budgeting results 2 His spending is reduced
partly because his utility bills are included in
the rent. If he is thinking about moving to
another flat he would probably have to allow for
more expenses such as bills and council tax. He
is also thinking about buying a car which would
take the money he presently spends on fares. He
would have to look into how much it would cost to
buy and run a car. If he wants to move and buy a
car at the same time he will have to budget
carefully beforehand to avoid getting into
difficulties. If he sticks to the same pattern of
earning and spending he will be able to make
plans for the future with more confidence.
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Budgeting techniques This simple technique can
help you keep control of your money. Many people
are surprised by how much they spend on certain
things because they have never added them up
before. This can lead to making changes and
economising. Once you know what your disposable
income is you can make plans for the future based
on a proper understanding of what you can afford
and how you can use that money. However, there is
one crucial ingredient willpower. Once you have
worked out your budget and how you want to use
your money you have to stick to it. Otherwise the
whole calculation starts again.
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Calculations It is important to do your
calculations on the same time period, ie weekly
or monthly. To convert weekly figures to monthly
multiply by 52 to give the annual total and then
divide by 12 to give a monthly total. For
example Rent is 100 a week 100 x 52 weeks
5,200 a year 5,200 ? 12 433.33 a month
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Converting monthly figures to weekly To convert
monthly figures to weekly multiply by 12 to give
a yearly amount and then divide by 52 to give a
weekly amount. For example Rent is 500 a
month 500 x 12 6,000 a year 6,000 ? 52
115.38 a week
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Tips for budgeting   Allow time to work out
your income and expenditure each month. Use
your bank statement to check all essential
spending. Keep a record of your spending and
review it once a month. Keep receipts wherever
possible. Set up standing orders or direct
debits for rent, telephone, utilities bills and
other regular payments. This can help you budget
and make sure you dont forget to pay bills on
time. Set aside an amount each month for
savings if you can and include this in your
expenditure calculation. Think ahead for any
future expenses you can predict such as
birthdays, Christmas and start of term. Plan your
saving toward these dates. Be aware of your
present financial situation how much your
current balance is and how much you owe. Avoiding
the subject will only make it worse!
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Get help with budgeting If you feel you are
getting into debt seek advice as soon as
possible. Consult a student welfare adviser at
your college or university or visit your local
Citizens Advice Bureau. They will help you get
control of your finances and help deal with any
priority debts. Before deciding to borrow money
check to make sure you are getting the best
deals. Check out any interest free offers first.
Compare interest rates and aim for the lowest
APR. Dont forget the cost of payment protection
insurance if included. If you are a student
open a student or graduate bank account if you
haven't already got one. Visit the cashpoint as
rarely as possible. Try withdrawing money for a
week and sticking to your spending plan. Spend
carefully. Compare prices for the same items in
different shops to find the best deal. Why pay
more for the same thing? Consider buying
second-hand goods if available. Visit your local
charity shops for a bargain! Find out if you
are entitled to any discounts and take advantage
of them.
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Activity 1 How much does it cost? This exercise
is designed to give you an idea of how much
things actually cost and the possible variations
in price and quality. Attached is a list of
items for which you have to find a cost. For
each item you must provide a source of evidence
to support your finding. Evidence could be a
clipping from a newspaper or magazine or a
receipt. Also a note of the source of your
information is acceptable, eg compact disc WH
Smith 9.99. Possible sources of information
include visits to local shops local
newspapers and publications friends and
family personal experience catalogues the
internet.
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Your research is done as homework followed by a
reporting back session in class. You can discuss
your findings and consider what you think is a
reasonable price for an item what you think is
a waste of money what difference does quality
make to your spending anything that surprised
you either cheaper or more expensive than you
expected.
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How much do things cost? Housing for each
consider (a) a one bedroom flat, (b) a
three-bedroom house 1 Rent 2 Mortgage 3 Council
tax 4 Insurance buildings or contents 5 Water
and sewerage rates 6 Electricity 7 Gas 8
Phone Food enough for 4 people 1 Weekly
shopping 2 A takeaway meal 3 A restaurant meal
4 A round of drinks
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Cars 1 Car tax annual amount 2 Petrol
weekly 3 Insurance annual amount 4 MOT 5
Repairs 6 Servicing 7 Parking Travel from home
to school or college and return 1 Bus fare 2
Taxi 3 Train ticket
Entertainment 1 Concert tickets 2 Tickets for a
play 3 Cinema tickets 4 A CD 5 A DVD 6 A video
game 7 A night out with friends Household goods 1
A TV and DVD player 2 A hi-fi music system 3 A
three-piece suite 4 A dining table and chairs 5 A
bed
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Activity 2 Budgeting case studies For each of
the following examples complete an income and
expenditure sheet and work out the persons
disposable income. You can use either the income
and expenditure calculation sheet or
spreadsheet. 1 A single man living alone in a
rented flat. He works 37 hours a week and earns
900 a month. His monthly expenses are Rent
200 Prescriptions 20 Council tax 100 Clothes
30 Water rates 10 TV licence 10 Sewerage rates
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Travel 50 Food/Household items 170 Telephone
40 Electricity 20 Newspapers 10 Gas 20
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2 A husband and wife and two children under 16.
He lost his job through ill health and his wife
looks after him and the children. They receive
598 income support, 564 child tax credit and
164 child benefit each month. Rent and council
tax are paid by benefits. They have the following
monthly expenses Water rates 15 Sewerage
11 Food/Household items 785 Electricity 60 Gas
60 Home insurance 15 Health costs 30 Clothes
130 Pets 25
TV licence 10 Travel 75 Car insurance
15 Breakdown cover 10 Car tax 15 Telephone
30 Newspapers 10 Nappies 30
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3 A single man lives with his son and was
recently made redundant. He is receiving job
seekers allowance of 240 a month. His monthly
expenses are Rent 120 Food/Household 50 Health
5 Clothes 5  Travel 30 Telephone
20 Newspapers 10
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4 A single woman earning 1,040 per month.
Expenses Rent 433.33 Food/Household
45 Prescriptions 10 Clothes 20 Travel 150 Car
insurance 34.66 Car tax 9.58 Telephone
20 Newspapers 7.50 Hire purchase (car)
171.87 Are there any areas where you think
economies could be made to non-essential
spending?
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Budgeting End