Family budgeting when in debt

People understand income. It’s simply money coming in or what you earn. 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.

When we bring together the two words ‘Income’ and ‘Expenditure’ however, people may scratch their heads. An Income & Expenditure Statement (I&E Statement) is just a outline of one’s income in a given timeframe (ordinarily a month) and what one spends during the same timeframe.

All you have to do is to list your income from all sources for one month and to tot up these sums. You then list your expense items for the same month and the amount of each and tot them up. Now you have two total monetary amounts. Subtract one total from the other and, assuming that your total income is higher than your total expenditure, the difference is your Disposable Income (DI). This DI is the amount of cash available to you to do as you please with. You can save or spend it or give it away as a present or do a little of all three actions – the decision is entirely yours.

To compile an I&E Statement if you’re part of a couple with or without children is a bit more complicated but only a little. You have to provide all sources of income and all items of expenditure for yourself, your partner and any dependent teens. Dependent children will in most cases be living along with you but not always. For instance you might have a child who is studying at boarding school. This is what is called a a family I&E Statement. Additionally, items of expenditure can vary from month to month. You could pay several things for instance car insurance annually. The answer is to calculate the regular monthly sum you need to set aside so you’re able to pay the annual sum when it falls due.

Just about the most major problem however occurs when your expenditure is higher than your income and you have negative DI. Now you are living beyond your means. You are having to pay more than your income. If the period for which you compiled your I&E Statement is typical of the year as a whole, then you must take steps to cope with the overspend. Otherwise you end up in debt which will increase in size as each month goes by. If this has been going on for a time you may already be significantly in financial trouble. What can you do?

A good start is look at ways of cutting back on your spending and then following through with actual cutbacks. This is often easier said than done. You could look at smoking, drinking, socializing and holiday expenditure. You could look at the cost of utilities and switch to cheaper providers of electricity, gas, telephone and mobile phones. You could decide to stop using credit cards and even cut them up.

You could look at ways to increase income. Could you take in a paying lodger? Can you or your spouse take on a second or part-time job? Do adult children residing with you contribute their fair share to the family budget? Do you get all the benefits you are entitled to such as tax credits and housing benefit? Could you downsize to a cheaper more economical car? Again, you need to follow through with actions – it’s not enough to decide what you need to do.

We call these considerations along with the follow-up activities ‘budgeting’. If you think this approach is simply too complicated or demanding for you personally or your family, do be sure to take professional advice. For anyone who is already encountering worries re-paying the money you owe you might be insolvent. If you would like know for sure one way or the other, do consider consulting CCCS, CAB or any trustworthy commercial provider of insolvency services and obtaining expert advice. There you will get advice, that is normally free initially, and help in compiling your family I&E Statement and you will probably learn for certain if you are insolvent or perhaps not.

Any professional Insolvency Practitioner (IP) will determine whether you are insolvent. Should you be, you are able to discover and also have spelled out to you the feasible solutions to your predicament. All available options will likely be defined. Such alternatives may well include Bankruptcy, Individual Voluntary Arrangement, Debt Management Plan, Debt Relief Order, Administration Order, Debt Consolidation or another financial solution. You can make your mind up if you would like continue further. You commit to nothing at this point and may walk away and ‘sort out’ your own personal finances.

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