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.
The
primary key to success with home finance is inaugurating a working financial
methodology…which basically means working out a monthly household budget. It
is, however, surprising how many people do not formally work out a budget and
as a consequence end up in financial difficulty.
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.
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Home Finance Advice