Creating A Budget

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Creating A Budget

To the average UK family of the last ten years or so, the word budget meant a car hire company, and only used when the Mercedes was in the repair shop. Nowadays, the word budget has taken on a whole new meaning for most people. In the credit crunch age, creating a budget and sticking to it is a must. Yet doing so is easier said than done.

It is probably the major exception rather than the rule that the average family or individual kept proper track of their daily, weekly and monthly expenses in the live now and pay later society that we lived in. By constantly borrowing to finance a life style that was unrealistic, very few families actually kept track of what it was actually costing them to love.

Nowadays, where credit control has become a way of life, and financial survival the name of the game, the need for financial prudence has become a necessity. The only way to establish what it actually costs to live and to live within their means requires a family or an individual to establish a budget based on the two immovable objects in life:

Income verses expenses. Income we should all be well aware of, and expenses might be more of a grey area. In order to establish their genuine living costs, a family needs to establish a set of statistics established during this new period of self imposed austerity that they might be living through. The minimum period to gather sufficient information is three months, with a year being ideal but far too long to be practical.

The major factors that go into making a family's annual budget are as follows:

1. Rental charges or mortgage.
2. Food and clothing
3. Utility bills (Electricity, water, gas among others)
4. Car expenses (if applicable)
5. Entertainment
6. Sundry expenses ( usually unexpected)
7. Savings and Pensions.

Only when these figures have been accumulated, analysed and debated, can a family establish an accurate budget. If your income meets or is more than your living expenses you are in a positive situation. Usually the opposite applies, and that's when it is time to sit down, sharpen the pencil and begin to decide where to cut back.

The least inflexible segment of the average family budget is rental or mortgage payments. In an ideal world, it might be possible to go and speak to your landlord or building society to reduce payments, at least temporarily. However the chances of getting a reduction are best described as slim.

Utility bills have become a problem as have the cost of running a car. The only thing to do is to switch of lights, turn of water as much as possible and keep car journeys to a minimum. Savings and pensions are a problematic area. The penalty clauses involving cancelling pension schemes can be very high, and certainly not worth doing. In the short term, it might be possible to freeze payments till your financial situation improves.

Entertainment is an area to be looked closely at for a family wishing to establish a stick to a realistic budget, as is food and clothing. Many families have no idea how little it can cost them to feed and clothe themselves, in a credit less world and if significant cuts can be made in a budget, it needs to be made in these budget segments.

Only when all these factors have been taken into account, can a family establish an accurate budget and have any chance of sticking to it.