Your Income and How You Spend It
April 8th, 2009 | by Administrator |Getting together the information required to compare your total income with your total spending can be quite an eye opener for most people.
If you do this over the period of the last year you will achieve a better understanding of where your money has gone and why you have landed in a situation where your debt is becoming insurmountable.
If your are in salaried employment then working out your income will be fairly straightforward and it should be relatively easy to make a list of your fixed expenses such as your rent or mortgage, your insurances and other factors such as utilities on monthly budget accounts. If your bank offers online banking services then this will make your task even easier. Start by checking the list of all your direct debits and standing orders and all your salary deposits.
You can make estimates of how much you spend on your shopping, or keep your receipts for the next few weeks for your regular necessities shopping. I would keep your shopping receipts for at least a month and use that total to base your estimate for the year. With your other non-essential spending you might make an attempt to calculate how much money you fritter away from one week to another. I would recommend that you don’t estimate and ask for receipts for everything. You should total up this minor spending weekly as trying to keep all the receipts may be inconvenient. Almost everybody who does this exercise finds that they have underestimated considerably the amount of money that they have been spending.
To illustrate this check back on the last month, find out how much money was in your bank account right after you were paid then subtract your regular fixed outgoings, rent or mortgage, insurances etc. Then subtract your shopping for essentials, food, etc. How much money is left? Now how much do you really have? Where has the difference gone? This is your hidden spending, the money you fritter or don’t notice you are spending, this is the total that you need to address to start getting out of debt.
So where did all this money go? Often it’s the little things that you don’t consider worthwhile recording such as the cup of coffee you have every day with the occasional take-away that you have once or twice a week. Maybe it’s the magazines that you buy each week or some other relatively small expense that adds up with all those other relatively small expenses to create a big deficit in your finances over the term of the year or so.
These are the areas where you can cut back or eliminate spending that will, over time, have a huge impact on your ability to reduce your debt and remain debt free once you have put yourself in that position. A small cut in spending on many things will give you the extra money to pay back your debts quicker, once that debt is gone you will have the spare cash for the little luxuries in life.
