Personal Budgeting Tips on How To Pay Off Debts

personal budgeting

In today’s economic climate it is becoming increasingly important that people understand their finances and are then able to budget. One of the main reasons that it is important to understand your finances is to avoid being in debt. Debt is very easy to get in to, but extremely difficult to get out of. This is because when you are in debt, you are constantly being charged fees and interest on the amount that you owe. Taking control of your finances and being able to budget can help you to avoid this situation in the first place. Secondly, being aware of your finances will help you to organize your payments each month, helping you to ensure that each bill is paid on time, avoid having utilities cut off or incurring administration charges for late payments. Finally, understanding your finances and budgeting will help you to save for both long term and short-term financial goals that you have set for yourself.


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The first step in devising a budget and understanding your finances is to work out your income each month. This is important because your income is what will pay for your expenditures. Your income is any money which comes into your household each month. This can be any earnings or benefits that you receive. When budgeting, any earnings or benefits that your partner or other household members receive should also be included, but only if they are also contributing to any household expenditure.

To find your total income, simply list all these monies and add them together. The final figure is your total income for the month. This needs to be done for each month individually, as although most months your household income remains the same, there may be certain times of the year where there are differences. For example, if you get a bonus at Christmas or at the end of the tax year then your income for this month will be greater, whereas if there is a time of the year when you take leave and receive less pay, then your income for that month may be lower.

The next step in understanding your finances and devising a budget is to calculate your monthly expenditure. Expenditure is any money that you pay out each month, such as mortgage repayments or utility bills. Many payments will remain the same for each month, so calculate the total of these first.

Then you need to look at months where you may have additional expenditures. An example of this is if you pay your car tax annually or bi-annually. You will need to add these expenses into the months when these payments are due. Similarly, you may be aware that there are certain months when you spend a little more, such as during the school holidays or at Christmas. Allowances should be made in your calculations for these discrepancies.

Some bills, such as groceries, may vary from month to month. In this instance, it is wise to overestimate the total expense. This way you won’t be left short of money as your calculations will cover the cost. If you spend less than you have estimated, then this should leave you a little extra money at the end of the month.

When considering your expenditure, it is also wise to consider the dates that different payments need to be made throughout each month as this will help you to ensure that you have enough funds available at each stage of the month. Some payments go out on the first of the month, others on the last day of the month and some will be paid on a set date each month.

Now that you have calculated your income and expenditures for each month, you can identify months where you will have no financial problems and others where you may be a little short of money. If your income is greater than your expenditures, then this is good news! If you have more income than the total sum of your expenditures, then this means that you will have money left at the end of each month. You have two options here. Firstly, you can use this money to buy non-essential items and treats for yourself. Secondly, you can consider saving this money in your bank account or in a savings account that pays higher interest on your savings. The latter option is the wisest one to choose as this will help you to cover any unexpected costs that you may encounter in future months.

However, finding that your income is less than your expenditures is bad news as it means that you are spending more than you are earning. This will increase the likelihood of you getting into debt and having financial difficulties. In this situation you need to consider doing one or both of the following things; increasing your income or lowering your expenditures.

In the case of increasing your income, there are three options available to you. The first is to increase your hours in your current job, the second is to search for a better paid job and the third is to look for an additional job. These three options all have the potential to increase your income each month.

In the case of lowering your expenditures you have many options available to you depending on what your expenditure is. Look out for the best mortgage and insurance deals as these can easily be changed so that you are paying lower interest rates for your mortgage or so that you have a better deal on your insurances. Another way of lowering your bills is to cut down on your use of gas and electric. Simple measures such as turning off the lights when you are not in the room and not leaving electrical appliances on standby can make a significant different to the cost of utilities each month. Groceries are another area where you can decrease your cost. Looking out for offers, only buying what you need and shopping on the internet are all good ways to make savings.

When you have worked out your finances and budget, if you realize that you are experiencing financial difficulties, it is often wise to consult a professional who will be able to advise you of how-to budget, avoid debt and increase your savings. The first person that you should talk to is your bank manager. They can help with all these matters, advise you on the best accounts to use and arrange an overdraft facility if necessary. Other professional advice options are financial advisors and debt advisors if this is necessary in your personal situation.

Overall, it is vital that people have an awareness of their financial situation and can budget to avoid debt and financial difficulties. It is very easy to do this just by calculating your income and expenditures and then making provisions for any discrepancies between these two figures. If you are already experiencing financial difficulties or are having difficulty in understanding your finances and planning a budget, then it is wise to seek professional advice to assist you with this.

Gina Wilson

Another post from Gina Wilson – Credit & Loans Specialist Blogger.

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