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Home finance can be simultaneously, one of the easiest as well as the hardest areas of the personal finance arena to get right. Ultimately, success or failure in this area of endeavour comes down to three personal disciplines; inaugurating a strict home finance methodology, saving regularly and personal financial discipline.

In its simplest form, working out a budget is just a matter of listing all monthly outgoings on one side of a piece of paper and listing all monthly income on the other side; the difference between the two amounts will be the monthly household disposable income. This in itself sounds easy enough, but to accomplish this properly, this idea should be carried through over the entire year in a sort of ‘yearly planner’ format. Let us look at this idea again and see how it would work in practice with an example.

Jan

Income Outgoings

Salary (Husband) £1,000 Mortgage £700

Salary (Wife) £1,000 Council Tax £120

Water Rates £ 30

Car loan £150

Food /Drink £500

Disposable

£500

Now at first sight, it appears that the couple in the example’s free disposable income is £500 but if the couple did not carry the monthly budget projection through to following months, they could be heading for trouble. Such items as Gas, Electricity and Phone bills traditionally fall due for payment every quarter (every 3 months) and by not accounting for these as well as other regular but widely spaced payments such as car tax etc, the couple could easily be left with a huge deficit in the future…once such a deficit occurs, it is notoriously difficult to recover from.

This brings us to the second discipline of household finance…that of savings.

It is an uncomfortable but incontrovertible truth that a household that fails to make regular monthly savings is heading for disaster somewhere along the line. Anyone who runs a household or has children knows that ‘out of the blue’ one off expenses ALWAYS occur. By saving regularly a household should be able to meet its obligations as well as finance such items as holidays and other large discretionary purchases; the alternative is to continuously struggle to make up deficits in finances or to have to resort to costly loans to do this (which, in fairness, can sometimes be a valid option) or bankruptcy.

The final cornerstone of successful home finance is financial discipline. Having worked out a budget and put aside an amount for future expenses, it is imperative to discipline oneself to stay within ones monthly means. Sometimes, of course this will be exceeded, due to deliberate overspend (and who of us hasn’t wanted to buy that luxury item NOW, even though we didn’t have the money now), but should this be that case, strict discipline in compensating for this in future months will see the household finances restored safely to a happy equilibrium.