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Developing good budgeting skills is the cornerstone of managing your money at every stage of life. The principles of effective budgeting are simple, but easily overlooked when juggling bills and spending priorities.

Budgeting is especially important in later life as many older people find themselves having to manage on reduced incomes, deal with higher fuel bills or cope with financial pressures following life changes such as bereavement or health difficulties.

In these circumstances, keeping track of what you have coming in, and what you are spending is vital. Even when not experiencing financial pressure, budgeting helps identify surplus income and develop good saving habits.

Budgeting effectively at its simplest is recording all your income from every source, and taking away everything you have to spend regularly.

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Identifying Priority Spending

This is the first step in setting up a budget. Priority spending will usually include some or all of the following outgoings:

  • Rent/mortgage
  • Rates
  • Utility bills
  • Secured loans
  • Housekeeping (food, cleaning products, toiletries etc)
  • Magistrates Court fines (if applicable)
  • County Court Judgements (if applicable)
  • Hire purchase payments for essential items (e.g. car)

These are the payments which you should aim to pay first out of your income, as the consequences of non-payment will be the most serious.

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Identifiying Other Spending

This is the next step in your budget plan. It could include any combination of the following sort of payments:

  • Phone / mobile phone
  • Travel costs
  • Costs of running a car
  • Insurances
  • Credit repayments
  • Social and hobbies (books, magazines, newspapers, cigarettes, alcohol days out etc)

This is not an exhaustive list - remember to make sure you include everything you are spending. The figures you record should be both realistic so that you actually budget for what you need to spend, and also honest, as if you record less than you actually spend the budget will not tell the true story about your spending.

It is very important not to forget irregular spending. This covers all the outgoings you don’t have every week or month, but still need to budget for. This could be gifts, Christmas spending, paying for a holiday or repairs to your home or car. The easiest way to include these outgoings is to calculate how much you spend on the items in a year and divide the total by either 52 or 12 to get a weekly or monthly figure.

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Dealing with a Surplus or Deficit

Once you take all of your spending away from your total income you will either be left with a surplus (money to spare) or you will identify that you have a deficit (you are spending more than you have coming in).

If you have a surplus you can start thinking about saving regularly to give you a safety net if in case of an unexpected expense arising. If you have a significant surplus, then you may need to consider getting independent financial advice about investing your money for the longer term. 

If it is clear that you are struggling to make ends meet then there are a range of options to consider. Perhaps you simply need to identify where savings can be made in your expenditure or possibly you should consider checking that you are getting all of the benefits you are entitled to claim.

If you have a significant deficit, you may already be struggling to pay bills, or have accrued some debts. It is essential that you do not ignore debt difficulties and that you get advice straightaway.

Budgeting Tools

There are budgeting tools available online to help you collect and record all the information you need such as the Money Advice Service's online budget planner.

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