|
Download Merryn's Budget Calculator for
use in Microsoft Excel.
One of
the reasons we all find dealing with our finances so
difficult is because most of us don't really know how
much we have or how much we spend: we have no idea what
our current financial position is and we are too frightened
to find out - just in case we don't like what we see.
However this is one area where we really have to get
a grip. It isn't particularly hard to create a snap shot
of your current financial position and it really isn't
that boring either: if you are the kind of person who makes
lists, who gets a kick out of completing a task or suddenly
having a tidy desk you may well actively enjoy working
out where you stand when you get down to it. If you aren't
you may find it a bit of a chore, but once its done you'll
be very pleased with yourself. Why? Because you'll have
taken the first step towards making your money work for
you. If you don't know how your finances currently stand
how can you possibly know where to go with them next? Once
you do know you are well on the way to making your money
work for you over the long term - to making not a source
of anxiety but a source of peace of mind.
What I've done
is make two tables for you to fill in. once done they
will - together - tell you exactly what you've got and
suggest what you should do next. The first helps you to make a proper
list of what you make and what you spend every month. All
you have to do is put in the numbers and they'll all be
added up for you. You may not know the real answers to
some of the spending bits right away. Do you really know
how much you spend in the pub each month for example? Given
this it might be worth taking a week or so over filling
in the spending bit of the form - keep a spending
diary over the week and then transfer the numbers from
that into your table. You also need to be sure you get
all the numbers you need in correctly- bills paid once
a year such as house insurance and car insurance need to
be divided by 12 so they are accounted for each month.
The same is true of things such as holidays and anything
else you pay for sporadically. When you come to do the
income part of the chart make sure you put in the income
after tax not before - there's no point in adding in a
sum you will never actually see. You will end up with three
final figures on this chart - what you spend, what you
earn and the difference between the two.
Once that is done
you need to fill in the second form - this will tell
you how much you are worth today. If you liquidated all
your assets and paid off all your debts this is what you
would have left.
So what do all these numbers tell
you? Well clearly if you can see from the first form that
you spend more than you earn you've got a problem already.
Is it easily solvable? Maybe. Look at all the columns
that I've put little stars after. These are the ones you
don't need - you need to pay your rent (no star) but you
don't need regular manicures (star). So if you take out
most of the starred expenses do you still spend more than
you earn? If yes you need to go further. Can you cut your
expenses further? Can your mortgage be moved to a better
rate or your utility suppliers changed for example? Or
can you perhaps get your income up? Can you ask for a raise,
take in a lodger or even et a second job. Even if your
spending only outruns your income by a few pounds a month
you really need to think about how you are running your
money - a few pounds a month adds up to real debt a great
deal sooner than most of us think. Note too that overspending
can sometimes be a matter of saving too much - is the
fact that you are saving regularly or paying into a pension
regularly meaning that you are going into debt every
month? If so you may be better cutting down your savings
and getting rid of your debt instead - sometimes it is
best to take care of today before you think of tomorrow.
If you find you are
earning more than you are spending you are obviously
doing better than some but you may not be in the clear.
How much is the 'on your debt' section of your spending
as a percentage of your total spending? If it is more than
15-20% (not including mortgage) I think you have a debt
problem so whether you are managing to cover that debt
or not you still need to take a look at the way you are
dealing with your finances. You also want to look at what
you can do to increase the surplus of your income over
your spending. If your numbers look ok but the pensions
and saving payment columns on your chart are empty you
probably shouldn't feel too smug - you might be taking
care of today just fine but the future doesn't look too
good does it? You need to get your surplus up because it
is this surplus that should be spilling over on to the
second chart in the form of increased savings and investments
- the things that can give you long term security and financial
freedom. A basic rule of thumb on the second chart is that
your assets must be worth more than your debts. If they
aren't you're insolvent and that's not good. In an ideal
world your net worth (your assets minus your debts) would
be enough to give you a sense of freedom - ie if you sold
everything and paid off all your debts there'd
be enough left over for you to live in a beach hut in Thailand
without working for 10 years. If it isn't you need to do
your utmost to get the surplus on the first chart up so
you can create that kind of freedom on the second.
|
