As mentioned last Monday in my introduction to ‘Take Control Of Your Finances‘, I am going to be posting a blog each Monday which will help you to take control of your finances.
Some of it may seem obvious, some of it may seem too simple – but until you put it into action you’ll never know how well it could work.
Wouldn’t it be amazing not to worry about bills and unexpected payments?
STEP ONE: Assessing Your Current Financial Situation
Bizarre though it may seem, debt can be as hard to shake off as an addiction to alcohol or cigarettes!
Also, much like the AA 12 step programme, admitting that you have a debt problem is the first step to solving it.
Wait until you have a clear afternoon with a few hours spare – in the few days preceding it, every time you have a spare minute search out paperwork. Get an empty drawer, old shoe box or even just a space on a shelf and put every piece of paper that you can find (even all the unopened scary stuff that you’ve hidden in the kitchen drawer) which relate to finances there; things like bank statements, credit card statements, rent/mortgage statements, utility bills, wage slips, benefits notifications, bailiffs letters, phone bills, shopping receipts etc etc.
The idea being that when you get your free afternoon there will be a huge scary pile of papers there for you!
Make a cup of tea and take the pile to the centre of a room and sit on the floor with it (really) take the top piece and look at it – let’s say that it’s a bank statement, put it to one side on the floor and that is then the start of your ‘bank statements’ pile. Take the next piece, let’s say that it’s a gas bill, put it in a different position on the floor and that is then the start of your ‘utility bills’ pile. Keep working your way through the original pile of paperwork until you have assigned every piece to it’s appropriate pile. You should end up with several smaller, more manageable piles.
Reward yourself with another cup of tea and maybe a biccy or two!
It’s easy to give up at this point – don’t.
This should give you all the information you need to assess your current financial situation.
At this point you’ve got a couple of choices:
* Make an appointment with your local CAB or call the CCCS – these are professionals who will help you, for free, to work through your paperwork and establish your current situation.
If you can be patient and methodical then you will be able to do this yourself, but if you find the whole thing too daunting then pick up the phone to the CCCS – it’s what they do all day, every day and they will help you without any kind of judgement. I’ve used them myself, they are nice people. Having said that, it might be worth completing the follow exercise before you call them so that you’ll have all the necessary figures to hand.
* Work through it yourself.
To work through it yourself, you will now need either a computer with excel (or similar), or a lined notepad.
If you have access to a computer and are confident using it, try this link from Money Saving Expert. Follow the instructions and you should soon arrive at an overview of your financial situation.
If you are doing it ‘old skool’, grab your lined pad, a pen and a calculator – and another cuppa of course!
Start at the top with any monies that you have coming in, something a little like this:
List absolutely every source of income that you have here – you might get regular income from something that I’ve not thought of but it is essential to add every single penny to your list so that you have an accurate figure.
Draw a line under it when you’ve done and add it up to obtain a total. It is important to convert all the figures so that you are adding them all in the same way – ie monthly or weekly. For this process I find it easier to convert everything into a monthly figure so that you know your total monthly income. (For any payments that you receive weekly, x them by 52 and then divide that figure by 12 to get the monthly amount.)
Then repeat the process for your ESSENTIAL outgoings:
It’s a short list isn’t it? That’s because this list is limited to your ESSENTIAL outgoings only. If you have anything else that is truly essential then add it to this list: prescriptions, school meals, hair cuts, essential clothing for example.
Once done, draw a line under it to create your monthly total – this figure SHOULD be less than your income figure.
Then repeat this process with a list called NON-essential outgoings – on this list you put your credit card minimum payments, mobile phone bill, store cards, personal loans, finance agreements, catalogues etc.
Again, draw a line under the list and add up the figures to create a total for your non-essential outgoings.
At this point – if your essential and non-essential outgoings total (added together) less than your income then you are doing fine and simply need to budget better.
If, at this point, the two outgoings totals are more than your income then we will need to look further into ways to bring them all into line.
Either way, now take a new sheet of paper (or start a new spreadsheet) and make a list of all your creditors (people you owe money to) – make 3 columns and put the company name on the left, the total amount of the debt in the middle and the minimum monthly payment on the right:
It is vitally important to list everything here. Once you’ve finished total the 2nd two columns so that you have a total debt outstanding figure and a total monthly payments due figure.
Now you definitely deserve a cup of tea! You might well fancy something stronger but hang on just a little bit longer as we are nearly done for today!
You now have all the information you need to assess your finances.
Keep it all separated and neat either by starting a file if you have one spare or by keeping in carrier bags inside a box or draw so that every time a new piece of post comes you can add it to it’s appropriate pile – keep on top of the filing from today so that you don’t have to repeat the sorting process over again next time!
If all of your monthly outgoings are less than your monthly income then you simply need to look at ways to manage your day to day finances better. You’ve already made a good start and now need to keep on top of the bills as soon as they come in.
If you over spend on unnecessary items, try working out your surplus money each month and then splitting it into 4 envelopes. Allow yourself one envelope a week as a way of disciplining yourself.
Take a look at the ‘demotivator‘ on Martin’s Money Tips, it’s a great way to put yourself off buying a latte on the way to work and you’ll be taking a packed lunch before you know it!
If, however, your outgoings are more than your income then over the next couple of weeks we will look at the ways you can reduce your outgoings and manage your debts. I assure you that no debt problem is unfixable. No matter how much you owe or how little you have coming in, there are ways (legal ways!) that can get you debt free. Although it is natural to worry about your finances, don’t let them depress you and don’t let them ruin your life. There is a way out.
If you can’t wait – pick up the phone and call the CCCS