How to find out what's happened to your cash
Where is your money going? How can you set up a budget? Rob Griffin asks financial advisers and debt counsellors for tips
Saturday 11 June 2011
Keeping track of your money is crucial. Unless you know what you have coming in each month and how it's being spent you will be on the fast track to financial problems. Add in a few missed credit-card payments and you will soon have debt issues spiralling out of control.
Learning to budget properly is the answer. It might sound straightforward but understanding how best to allocate your resources, knowing when you have to make minimum repayments and monitoring your bank balance needs to be carried out with something akin to military precision.
The good news is that there's plenty of help at hand. We asked a panel of independent financial advisers and debt counsellors to supply us with their best budgeting tips, as well as taking a look at the new breed of personal finance programs on the market to help you monitor your money.
Step one: Deal with your debts
The first step is to get on top of your current financial situation. How much do you owe on credit cards? Do you have any other outstanding loans? Have you been suckered into opening up store cards charging punitive rates of interest?
It is crucial you don't bury your head in the sand and ignore debt problems because the earlier you seek advice, the more that specialist charities and agencies can do to help you, points out Una Farrell of the Consumer Credit Counselling Service.
"People need to work out exactly how much they owe and divide these into priority and non-priority debts – with priority being a debt for which non-payment could result in them having a utility cut off, losing their home or being sent to jail," she says.
A basic income and expenditure budget will show you how much money is available to service your debts. However, if you don't have enough to keep up with monthly payments – or are only making the minimum credit card repayments – seek advice from CCCS, Citizens Advice or National Debtline.
Step two: Put together a budget
So how do you put one of these together? Start by listing your take-home pay and any other income you receive, and then compare that to how much you typically spend each month. You might find it helpful to look through your bank and credit card statements to see where the money has gone.
You should list the essential expenditures you really can't avoid, such as your mortgage/rent, council tax, car and home insurance, utilities, fuel and food – followed by semi-essentials like clothes and retirement planning, that you could feasibly live without.
Finally you take into account the luxury items such as eating out and your satellite television subscription, says Justin Modray, founder of the website Candid Money, who points out that you should still shop around for the best deals even if you can afford everything on all three lists.
"If you're spending more than you'd like or can afford then some disciplined pruning will be required," he adds. "After trimming costs by shopping around, start by cutting back on luxuries and, if that's not enough, look to make cuts on your semi-essential items too. The main rule is to be realistic as there's no point drawing up a budget that looks great on paper if there's no chance of being able to stick to it."
There are always savings to be made that can help your budget, points out Mel Kenny of the financial adviser Radcliffe & Newlands. "In these times of low interest rates consider annual travel cards," he suggests. "Not only is there the saving for paying up front but you could also get a third off the price of train journeys to and from outside your area."
Step three: Organise your short-term savings
Once you have a list of target monthly expenditures you should add in a contingency fund for those unexpected items that invariably crop up from time to time. This can include emergency repairs to your boiler, paying for your car to be repaired or money to cover the cost of a filling at the dentist.
"If possible, try to also save at least 5 to 10 per cent of your income, including pension contributions," adds Modray. "If you have a specific purpose for your savings then run a simple projection to see whether you're saving enough."
According to Geoff Penrice, an independent financial adviser with Honister Partners, the best so-called rainy day emergency funds are those that are flexible, tax-efficient, convenient to use and which also come with an attractive rate of interest.
"It makes sense to use one's ISA allowance as the interest is paid tax free," he says. "You can save up to £5,340 in the current tax year and it is possible to get more than 3 per cent from the best ISA accounts, such as the Nationwide e-ISA."
Of course, this is still less than inflation which deems it unsuitable for the longer-term, but this is the price you pay for flexibility and convenience. "If you are willing to tie your funds up for longer then you can get around 4 per cent on a three-year bond and up to 5 per cent on a five-year bond such as BM savings Bonds from Birmingham & Midshires," he adds.
Step four: Put a longer-term savings plan in place
Patrick Connolly, head of communications at AWD Chase de Vere, believes the best approach for long-term savings is a combination of pensions and ISAs – particularly Stocks and Shares ISAs, which may be riskier but offer the potential for better returns.
"Pensions provide initial tax relief benefits but are inflexible, whereas ISAs can still be tax efficient and are extremely flexible," he says. "You should also check out any employers' scheme and find out whether they will make any contributions."
Step five: Choose the best way to track your money
You may have your finances sorted out but the challenge now is keeping on top of them. So what are the best ways to do this? Well, this will be down to personal preference. Some people like to use a basic pen and paper, while others prefer to let technology to do the hard work on their behalf.
Spreadsheet packages on the computer, such as Excel, have been around for many years and enable you to carry out complex calculations. This makes them ideal for tracking incomings and outgoings – just remember to print out copies and make back-ups in case you lose any data.
The next option to consider is specialist personal finance programs. There are now plenty of these packages available which allow you to see exactly what is happening to your cash and whether it's actually been working on your behalf.
A number of these are free to download, while others will set you back around £30. At their most basic they will enable you to construct monthly budgets and analyse expenditure. Others, meanwhile, allow you to import data direct from your bank and share accounts.
It's important to know exactly what you want from such a program but it's worth taking a look at Ace Money Lite if you want a free offering, or Bank Tree, Home Accountz or Moneydance if you're willing to spend a bit of money.
However, even the simplest programs require a considerable commitment in time, as you will need to manually input much of the data – although most allow information stored elsewhere to be uploaded – and then update it regularly to make it worthwhile.
The next step beyond these are account aggregators: websites that enable you to view all your online accounts, even if they are held at different banks, from one screen, instead of having to constantly log-on to various sites.
However, while these will save you time, you need to be careful as you are effectively allowing a third party into your personal banking arrangements. After all, you wouldn't hand such details over to someone you'd just met, would you?
Particular issues to consider include the fees involved, whether your bank allows you to give your passwords to an account aggregator, and what level of protection you will be afforded should something major happen, such as a security breach.
Regardless of what method you have chosen to keep on top of your finances, it's a good idea to monitor your spending closely for the first couple of months, then every once in a while thereafter to ensure you're sticking to the plan, advises Justin Modray.
"If you want to track things month by month, then personal finance software will come into its own, especially if it can import data from your bank account and credit cards," he says. "However, this takes more time than most of us want to spend, so a check every few months should be fine."
The important aspect of budgeting is simply developing an awareness of what you're spending and how your finances stand during the month. "If you need any motivation then just think how much happier you'll feel avoiding or paying off expensive debts," he adds.
Consumer Credit Counselling Service.Helpline is open 8am to 8pm, Monday to Friday and its online counselling tool CCCS Debt Remedy is available 24 hours a day, seven days a week at www.cccs.co.uk
Interest-only mortgages return to give more flexibility to borrowers
Scam alert: make a big noise to beat the crooks
Bargain Hunter: Eurostar offers child fares for £1 each way to Paris, Brussels and Lille
10 tips for taking out a personal loan
Bogus Islington landlord scams public for £20,000 in fake deposits
- 1 Tunisia hotel attack: Locals form 'human shield' to protect hotel from gunman Seifeddine Rezgui
- 2 David Cameron refers to 83-year-old Labour MP Dennis Skinner as 'Jurassic Park'
- 3 Alton Towers Air breaks down: 80 people stuck on broken down Monorail during heatwave
- 4 German ethics council calls for incest between siblings to be legalised by Government
- 5 Alwaleed bin Talal: Saudi Prince to donate entire $32bn fortune to charity
The moment a Queen's Guard soldier lost it and drew his gun at annoying tourist
Greece crisis: IMF was pushed around by Angela Merkel and Nicholas Sarkozy – and now it is being humiliated
Greece crisis: The wider lesson is that it’s time to abandon this failed experiment in currencies
'I wish the BBC would stop calling it Islamic State' – David Cameron unleashes frustration at broadcaster
Girl, 7, stares down hate preacher at Ohio festival with pro-LGBT rainbow flag gesture
They are neither a 'state' nor 'Islamic': Why we shouldn't call them Isis, Isil or IS
iJobs Money & Business
£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...
£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...
£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....
£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...
Day In a Page
This five-bedroom home enjoys countryside views over the Blyth estuary to Southwold, offering flexible living space with a ground-floor annexe - ideal for use as a holiday let.
Close to the market town of Eye, this four-bedroom detached home offers a double-height living room which takes the place of the original, 19th-century, chapel nave.
Dating back to the 19th century, this four-bedroom home needs modernising. Spanning three storeys, the red-brick house has a fireplace, a small terrace and a cellar.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
This six-bedroom Georgian home is on three floors with open fireplaces, a two oven Aga, an annexe, and cottage gardens with outbuildings and a car barn.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B or countryside retreat, subject to change of use permissions.
This Grade II-listed three-bedroom home is situated on a private road, just a short walk from the sandy beaches of Frinton-on-Sea.
Less than five miles from Malmesbury, this four-bedroom cottage comes with equestrian facilities and gardens that extend to approximately three acres.
Spanning three storeys, this late-Victorian five-bedroom farmhouse is a spacious family home with a modern interior and B&B potential.
With an original church arch, this triplex one-bedroom church conversion has a light, spacious, feel and comes with a secure off-street parking space.
This recently-refurbished three-bedroom home has bi-folding doors that lead out to a decked seating area - ideal for alfresco dining this summer.
Well-located for coastal walks and popular restaurants, this detached four-bedroom home offers views over farmland, to the Solent, the Purbecks and Bournemouth.
If you love high ceilings, school conversions like this one are bang on the money. This two-bedroom flat is minutes from Burgess Park and the foodie haven at Borough Market.
Set within a church conversion in Bermondsey, this two-bedroom maisonette combines existing features, such as original arches and brickwork, with a contemporary finish.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
This four-bedroom home offers a vaulted ceiling in a breakfast room that's ideal for summer entertaining with doors that open to the patio and garden.
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.
This four-bedroom detached home comes with grounds that span to approximately 2.5 acres, as well as two large patio areas and a double garage.