Eastbourne Citizens Advice Bureau Financial Literacy

1. Eastbourne Citizens Advice Bureau Financial Literacy BUDGETING sponsored by BUDGETING

2. budget   • noun1 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. BUDGETING

3. Budgeting isn’t 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. BUDGETING

4. Basically…. Income minus - Expenditure equals = Disposable income BUDGETING

5. 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. BUDGETING

6. 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. Income and Expenditure form is available as Excel Spreadsheet and as pdf file. BUDGETING

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8. 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. BUDGETING

9. 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. BUDGETING

10. 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. BUDGETING

11. 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. BUDGETING

12. Lets look at an example: Jim is 23 years old. He has a full time job which pays him £1200 a month. He has no other income. BUDGETING

13. Jim rents a flat for £550 a month and that includes all bills. He does have to pay for a TV License which costs £15 a month. Jim estimates he spends around £200 on food and household items and about £100 a month on clothesHe doesn’t 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 sky tv. At a guess he spends about £100 a month on various things like CDs, socialising etc.Let’s total those figures…… BUDGETING

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15. So £1200 income Minus £1155 monthly spending leaves Jim…. £45 left at the end of each month. BUDGETING

16. Putting everything on paper has shown Jim that his financial situation is OK, perhaps a bit better than he realised. He’s not overspending and still has something left over at the end of each month which he could put into a saving account.He can also see certain things which he could reduce, such as how much he spends on clothes, mobile phone and sky TV – all non-essential spending. BUDGETING

17. His spending is reduced partly because 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 travel 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. BUDGETING

18. 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…. BUDGETING

19. It is important to do your calculations on the same time period i.e. 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 BUDGETING

20. 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 BUDGETING

21. Tips for BudgetingAllow time to work out your income & 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 and/or direct debits for rent, telephone, utilities bills and other regular payments. This can help you budget and make sure you don’t 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, start of term and 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! BUDGETING

22. 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. Don’t 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 cash point 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. BUDGETING