Making a budget when you’re in debt is fairly eye opening. As a couple who are in debt and very conscious of this fact, we thought we pretty much knew what was coming in and going out of the bank account especially as each month there’s an extremely fine line between going overdrawn and staying in the black.
One of the first things we’ve had to do in order to face up to our debt and begin steps towards managing our situation was to create a budget, a completely honest budget, which lists all earnings and all outgoings.
Actually doing this down to the last pound was scary. It made us realise that if we were to make a few slip ups, such as buying a few things more than we needed to, or if a bill came in that we weren’t expecting that month, we would most certainly end up in our overdraft. This in turn means that we would not be in a situation to over pay debts (or save for our emergency fund as is the case currently).
There is a plus side to making a budget
Since making a budget, it has made us both think seriously about the way that we spend money and it also gave us an opportunity to highlight any potential money saving areas, where we could, in theory, release any savings to go towards paying off debts. The areas where we found we could save money are:
- Food shopping – by carefully planning our shopping around a menu of meals, we found that we could buy in bulk, cook and freeze in bulk. We do need to top up our shop with fresh fruit and vegetables but by planning this carefully, we’ve reduced our monthly shop down by £50-£100.
- Insurances – we have a few policies in place such as house, car and life insurance. Using Compare the Market, we’ve managed to shop around to get the cheapest deals at the moment.
- Utilities – by buying all of our Utilities in one place through the Utility Warehouse, we’ve managed to save money overall on our electric, gas, home phone and broadband. This company has a deal whereby if you take four services or more, they are able to offer a great discount. Even better, all these services are charged on one bill each month, which is so much easier to keep track of.
- Socialising – this is one area where we thought we weren’t really spending any money particularly as we don’t go out much anymore, what with having a young child. And this was true in a way except that occasionally we spent money on a takeaway or on coffees out and about. Not much admittedly, but seeing what we did spend made us realise that there was a need for actually creating a socialising budget – so that if we do get a takeaway once a month, there’s no need to feel so guilty about it. And this way, we’ll know exactly how much money we’ve spent.
Another budgeting measure we’ve put in place is to create a spreadsheet with details of when direct debits are scheduled to go out. This has proved a great help when planning our spend each month – particularly when unexpected bills crop up, as it’s easier to see what’s still due to be paid out of our account.
We also moved a lot of direct debits so that they are paid out earlier in the month just after we’ve been paid ourselves. This is really easy to arrange, we just phoned up the relevant companies and asked to change the date of our direct debit payments.
Making a true honest budget has been a key factor for us in realising the extent of our situation and it’s now something we intend to use each month to keep us on the straight and narrow.