How to Create a Personal Budget

Creating a personal budget is one of the most important steps in repairing an adverse credit rating and restoring your personal finances. Many households succumb to late fees, overdraft charges and high interest payday loans because they do not have a realistic budget in place, or because they do not follow a budget. Observing the limitations of a personal budget is as important as developing a budget with a debt management service in the first place.

There are many resources available to consumers who are seeking guidance in developing a customised budget. Many credit counselling agencies offer budget planning services for free or for a nominal charge. If you are seeking assistance from a credit counsellor, look for a reliable agency that holds a licence from the Office of Fair Trading.

Calculating Income and Outgoings

Your household income and your monthly expenditures are the two key components of a personal budget. To determine your income, tally up your wages, your partner’s wages and any other sources of financial support that you may have. If you have investment accounts, a pension or receive other benefits, include these amounts in your income.

Next, add up your monthly expenses, including your mortgage payment or rent, food, gas, electric and water bills, taxes, transport, insurance premiums, educational fees, automotive repairs, household repairs, medical expenses, recreational activities and other basic costs. Once you’ve calculated your necessary monthly expenses, you can add up the amount you owe in unsecured personal debt. Credit cards, catalogue debts, department store accounts and personal loans fall into this category.

If your current expenses and bills exceed your household income, you may be paying for many of your basic needs with credit cards. Buying groceries and petrol or paying utility bills with credit cards can quickly lead to overwhelming debt. Reducing your unsecured debts through a debt management programme, an equity release mortgage, a debt settlement plan, an Individual Voluntary Arrangement may give you the financial relief you need. Whilst bankruptcy is generally viewed as a last resort, this is the most appropriate solution for some consumers.

Creating a Crisis Budget

When you are in the midst of a financial crisis, it can be difficult to prioritise the bills and household expenses in your personal budget. With creditors phoning and sending letters to remind you of your overdue payments, you may feel bombarded by demands for money. However, it’s important to prioritise your monthly outgoings in order to avoid the most severe financial consequences and retain your most valuable assets.

Food, shelter and transport are among your most important priorities. If these needs are not met, you will not be able to survive, much less continue to work and earn an income. The consequences of failing to repay a mortgage, auto loan or other secured debt are more serious than the consequences of failing to pay off a credit card. In order to maintain a comfortable, livable home, you must pay for gas, electricity, water and telephone services. You may face severe consequences for failing to pay council taxes, child maintenance or TV licence fees.

During a crisis, your budget may need to be revised to cover your most essential expenses. Once you have worked with a debt management service to arrange a solution to your dilemma, you can create a more comprehensive, long term budget that will allow you to meet your obligations over time. As you regain control over your finances, your budget should be expanded to include monthly contributions to an emergency savings account. Creating a personal budget involves a gradual progression toward a healthier, more stable financial life.

Professional Assistance in Managing Debt

What People Are Saying

I’m glad I found this site – it was a great source of information on how to regain control over my finances and reduce my debt.

Harry A, Manchester UK

Charlie A

Paid down his
credit cards and can
now begin saving for
a home.