The Frugal Route out of Debt (Part 2)

Working Out Your Own Budget

(Part 1 can be found HERE)
Once you have estimated the amount of money you have coming into your household and have deducted everything that needs to be paid to sustain your accommodation, protect your income and get you to work on time, whatever is left is you basic household budget.

It costs money to be in fulltime employment. You could have expenses such as travel, childcare, lunches, workwear and additional grocery costs if your working hours inhibit you, timewise, from cooking and keeping up with the running of a busy household. All of these things eat into your income, so don't forget about counting up all those costs - it costs you to work.

Whatever you have left, after paying for your work-related costs and the actual roof over your head, be it rented or mortgaged, is what you have remaining to pay everything else. I count Council Tax as being part of keeping the roof over your head.

This is an example list of items that may need to be paid from the household budget:

Groceries
Toiletries
Cleaning products
Electricity
Heating (coal, logs, gas, oil etc)
Internet
Telephone
Mobile phone
Television licence
Shoes
Clothes
Gifts for others
Membership fees
Car
Insurances
Pets

In addition to the above, you might also have luxury expenses like:

Satellite television
Socialising
Entertaining
Hair styling
Makeup
Beauty therapy
Gym
Hobbies
Tobacco products
Alcohol
Travel & holidays
etc, etc, etc

Separating the needs from the wants, or the necessities from the luxuries, is what has to be done until such times as you are standing on your own feet financially. As long as you have debts of any description, your household is not financially independent. Even a mortgage is debt, although many overlook this fact. (You can't simply stop paying a mortgage and expect to keep the house, can you?)

So, this gives you an idea of where your money goes, after you have calculated how much of the stuff you actually have.

Step 1 - Work out your true budget

Step 2 - Work on those figures until you have a plan showing that you can afford to pay for everything from that amount. It's what's know as living within your means

Step 3 - Have some sort of contingency plan that will help counteract any sudden loss of income, especially if you have debt of any description. Clearing the debt is the obvious choice before any sort of savings pot can be afforded. Even saving loose change in a pot should be avoided, as every spare penny should be thrown at debts until they are gone. However, for the sake of sanity, some people prefer to save something, somewhere and there's no getting away from that fact.

As you have seen from Part 1, the magical figure of £4,000 or thereabouts keeps springing up, hence the reason I have always based these challenges on that figure. To this day, I still use the same figure and I still run my personal challenge as 'Living on £4,000 for the year'. This, I can tell you, would be far easier if I lived in a less rural area.

According to the www.minimumincome.org.uk website, as linked to the Joseph Rowntree Foundation, I need to earn £320.83 per week to lead what is perceived as a normal lifestyle. Well... you all know what I think of that! The suggestion that I should be spending £50.11 weekly on food alone had me laughing myself to sleep last night. (My average spend is less than £10 per person despite not having easy access to supermarkets.)

In conclusion, I can say never trust figures you read or hear from third parties unless they are calculated using your personal figures.

Year 1 of your new challenge to follow some frugal living techniques will always be the most difficult.

Having worked out what you think your budget should be, you now need to keep records and receipts for all spends, so you can compare these after the first year to the figures you had estimated.

Spreadsheets are great for this purpose, as you can input all your figures and calculate spends as the days, weeks and months progress. If you spot an overspend in one category, it allows you to reassess your figures and make some cuts elsewhere to cover those additional costs incurred.

Get a very basic free spreadsheet from our 'handy links' section in the frugal forums, or just ask in the members' daily thread, where someone will be able to point you in the right direction.

If you don't have any software for reading or working in spreadsheets, you can download the Open Office free suite of programmes, also listed in our handy links page.

Remember, every penny or pound spent has an overall effect on your entire budget, so it needs constant attention to keep it within its limits.

Join us in Frugaldom, take part in our challenges and see how quickly you can clear debts and pursue the route to a good life. It really is that simple and it can even be fun.

NYK in Frugaldom.