Thursday, 30 June 2011

Budgeting your way out of debt

Families might find themselves in debt for all sorts of reasons - especially when there's a new addition to the family! While it is a very good idea to have savings ready to cope with unexpected costs, some people may still need to borrow to meet them.

Some debts aren't a problem, but if a substantial part of your net income is going on debt, you may well have an issue. A bit of clever budgeting could - in time - set you (debt) free. Budgeting is also a good way to avoid getting into debt in the first place.

Work out your priorities

In terms of debt, any secured debt (against your property) is your biggest priority - a mortgage, or any loan secured against your home.

Any unsecured debt is less important than your priority debt - things like a credit card, unsecured loan or store card. That doesn't mean you should ignore these debts, but it does mean it's more important to make sure you're covering your secured debts.

Fuel bills, Council Tax, water rates, travel-to-work costs (including the running and upkeep of a car and car insurance) are also very important.

Finally insurance policies such as life insurance, contents insurance, those that would protect you if you lost your job, etc. are very important - but it's always a good idea to check you are getting the best deal for your premium, because you might be able to save money.

Once you have worked out what you have to pay every month, look out for any warning signs - if your costs are almost as big as your income, for example. In that case, you could benefit from some financial advice.

Begin budgeting

If you're not so confident in your budgeting skills - or simply don't have the time - but would still like the peace of mind you get when you know your bills are covered, a good solution could be a budgeting bank account. A 'jam jar' account can put your bill money into a safe place where you can't accidentally spend it.

This can help ensure the essentials are taken care of and give you a clearer idea of how much money you really have available to spend.

Or you could do a budget plan yourself, possibly using online budget planners like the one you'll find here. People generally work them out in monthly amounts - but don't forget the impact of quarterly bills, annual bills and annual expenses such as birthdays and holidays. Convert these to monthly amounts to make sure you're setting enough aside for them.

When there's a new addition to the family, there's a lot of expense to consider and you may feel under pressure to buy everything to suit the lifestyle you want your little one to have. Ultimately, the amount of money you really have available to spend should be your guide, not what you would like to have.

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