The difference between the two figures is what’s left to clear your debts. By outgoings I mean the amount you spend on your basic living costs.
Decide whether you want to calculate your budget weekly or monthly. It’s usually best to opt for weekly if you get your income weekly and monthly if you get paid monthly. Work out how much you spend or have to put aside each week or month to cover everything.
Add up your rent or mortgage and council tax. If you pay your gas and electricity every quarter add the bills for the last year together and divide by 12 to get a figure for a month or 52 for weekly. Do the same with any other bills you don’t pay monthly like the TV licence and water charges. Don’t forget insurance, car tax, any court fines, travel to work and school, prescriptions.
Once you’ve worked out all the bills calculate how much you usually spend on food and household items like bleach and toilet roll. You can add in bit for clothes, Christmas presents and going out but be reasonable.
It can be very useful to get a check list from your local advice centre so that you don’t forget anything essential. Most will have one. You can find details of various organisations that help with debt problems in the factsheet ‘Getting Help with Debt’.
Once you’re happy you’ve got a realistic figure for what you have to spend each week or month on day to day living subtract that figure from the household income. If you spend more than you have coming in, look for ways to cut your expenditure. If you got rid of your car could you cope and would you be better off? Are you spending more than you can afford on clothes and nights out? If you’ve already cut back as far as you can and feel at a loss to know what to do next get advice.
If you do have some money left over after you’ve paid out for all the essentials, that money can be used to clear your debts. You need to pay off the priority debts first. Those are the debts that could get you into trouble. If you don’t pay your rent or mortgage debts you could lose your home so they are priorities. Gas and electricity could be cut off and you could be fined for not clearing the arrears of council tax. So those are all priorities.
Don’t borrow more money to pay off debts. Get help first. Even consolidation loans which allow you to borrow one sum from which you can pay off all your debts may not be right for you. Get advice before you take on any new loans.