Budgeting Advice And Debt

By: Michael O'Doherty

People understand income. It's simply money coming in. Wages, salary, pension, child benefit, tax credits, dividends, interest on deposit accounts are all forms of income. People also understand expenditure. It's simply money going out or what you spend. Some spending is done by cash, some by credit or debit card, some by cheque, some by standing order mandate, some by direct debit mandate and so on.

Put the two words 'Income' and 'Expenditure' together however and many people will scratch their heads, even in this day when education is - supposedly- available to all. An Income & Expenditure Statement (I&E Statement) can be a scary concept for some but if you boil it down to its simplest form, all it just a summary of your income in a given period (usually a month) and what you spend in the same period.

All you have to do is list your earnings items for one month and the sum of each and tot them up and then list your expense items for the same month and the amount of each and tot them up. Now you have two monetary amounts. Subtract one total from the other and, assuming your total income exceeds your total expenditure, the difference is your Disposable Income (DI). This DI is how much money available to you to do as you please with. You can save it, perform some additional spending, give it away as a gift or what you may please.

Some obvious problems arise. For many individuals, it's not as simple as that to compile an I&E Statement. To begin with, you might be part of a couple with or without children and not a single individual. The solution is that you include all sources of income and all items of expenditure for yourself, your partner and any dependent children residing with you.Call this a family I&E Statement if you like. Secondly, items of expenditure may vary from every month. You might pay certain items such as car insurance yearly. The answer is to calculate the average monthly amount you have to put away so you can pay the annual amount when it falls due.

One of the most serious problem however is when your expenditure exceeds your income and you've got negative DI. You are now are living beyond your means. You are spending more than your earnings. If the month that you intend to compiled your I&E Statement is typical of the year all together, then you will need to take steps to deal with the overspend. Otherwise you get into debt which will grow in size as each month passes. If this has been going on for a while you may already be seriously in debt. Exactly what can you do?

A good start is examine means of reducing your spending and then following through with actual cutbacks. This could be easier said than done. You might look at smoking, drinking, socializing and holiday expenditure. You could look at the expense of utilities and change to cheaper providers of electricity, gas, telephone and mobile phones.

You could check out methods to increase income. Could you take in a paying lodger? Can you or your spouse handle a second or part-time job? Do adult children residing with you contribute their fair share towards the family budget? Can you get all the benefits you are entitled to for instance tax credits and housing benefit? Could you downsize to a cheaper less expensive car? Again, you need to stick to actions - it's not enough to decide what you ought to do.

We call all these considerations and the follow-up actions 'budgeting'. If you find this process is too difficult or demanding for you or your family, do take advice. If you are already encountering difficulties re-paying your debts you may be insolvent. If you want to determine this one way or the other, do consider going to CCCS, CAB or to any reputable commercial provider of insolvency services and obtaining professional advice. There you will get free advice and assistance in compiling your I&E Statement and you will learn for sure if you are insolvent or not.

Any reputable Insolvency Practitioner (IP) will determine if you are insolvent. If you are, you can explore and have explained to you the possible solutions to your predicament. All available options will be explained. Such options could include Bankruptcy, an Individual Voluntary Arrangement, a Debt Management Plan, a Debt Relief Order, an Administration Order, Debt Consolidation or some other financial solution. You can make up mind if you want to proceed further. You commit to nothing at this point and can walk away and 'sort out' your own finances.

Article Source: http://yourfinance.co.za