Tough times ahead

I think that most people are now aware that the UK has a large budget deficit. Basically, the country has been living beyond its means for years. As a result, there will be some uncomfortable years ahead of us as the new government attempts to deal with the deficit. We have to learn to live within our means again, and that doesn’t just mean the government, but we need to learn that as individuals as well.

After years of easy credit we have become used to having what we want whenever we want it because we can always pay later. That attitude hasn’t really done us any good, and it has resulted in a lot of people carrying large amounts of debt, often at high rates of interest. That can put real stress in your life, and sooner or later it catches up on you. Perhaps it is time to get back to the place where we learn to apply some old fashioned principles for controlling our finances again.

One of the most powerful tools that you can ever have for controlling your finances is to set yourself a simple budget. There are various tools available online to help you do this, but basically you need to add up all of your monthly income, work out all of your monthly expenses, subtract the two, and then look to adjust them until the result is a positive number. If the result is a negative number, then you are spending more money than you have coming in and you will be ramping up debt instead of reducing it.

There are two ways you can attempt to get your budget so that you are spending less than your income. First, you could try to increase your income by taking a higher paid job, or perhaps by taking a second job. This is not always easy, especially at the moment. Another way to do this is to reduce your expenses. For some ideas on how to do that try looking at www.moneysavingexpert.com. There are some great ideas on that site in all sorts of areas.

One of the incredible advantages of setting a budget is that it allows you to sit down and DECIDE how much you want to spend each month. Then, each month, as you keep a check on how much you are spending, you have a real incentive not to be seduced into parting with your money by impulse buying, because you have determined ahead of time what your budget is, and that you will not exceed it.

Another advantage of a budget is that it allows you to plan ahead with your finances. So, if you have existing debts you can work out a strategy within your budget for eliminating those debts, and ensuring that they don’t come back. You can decide how much to pay off each month (perhaps targeting the most expensive ones first; i.e. those with the highest rate of interest), and then work out when you will become debt free. In addition, you can learn to wait for the things that you want by saving up for them before you buy them. This will allow you to buy them at the minimum cost to you; i.e. no interest added on because you bought on credit. In this case, you decide how much you can save each month towards your goal, and then see at what point you will be able to make your purchase.

A great course that I would recommend you try for getting control of your finances is CAP Money. You can find out about this at www.capmoney.org. Have a look on the web site and see if there is a course running near you. It is much better to try to make a start by doing it with others, because you can encourage each other in the process.

Hopefully, in the coming years we will all come to a better place when it comes to handling our finances. We will be much better for it, and potentially remove a whole lot of unnecessary stress from our lives. Happy budgeting!