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Budget and Cash Flow

Introduction

Glossary

Legal validation: 15/06/2010

Budget and Cash Flow

The following steps, if followed, will help individuals and families keep control of their finances:

Do a complete financial health check
Identify ones goals
Make a budget and try to stick to it
Build an emergency fund.

(Source: www.itsyourmoney.ie Financial Regulator)

Budget and Cash Flow

tag logo Budget and cash flow

Financial Health-check

Source: itsyourmoney.ie

A financial health-check is a full review of your financial situation - income, expenditure, savings, loans and changes in personal circumstances, carried out on an annual basis. It will help you to identify specific changes at a given point in time, for example, reduced income as a result of increased taxes or pay reductions or the need to plan for a specific event such as a family wedding or a child going to college.

Use the budget planner on the Financial Regulator site as a starting point. This allows for the user to input yearly figures for income and expenditure, giving a snapshot of ones current money situation.

Consider the balance in savings accounts (the Financial Regulator recommends savings equivalent to 3 months salary as an emergency fund).

Consider outstanding loans (mortgage, term loans, credit card bills etc.). Work out how much you have to pay and the time it will take to repay the loans.

Identify Your Goals

Goals can be: short-term (0-3- years), medium-term (3 - 10 years) and long-term (10 years and over).

Examples of short-term goals are: to save for a car, save for Christmas, save for a wedding or save for a home deposit.

Examples of medium-term goals are: to save for home renovations, save for childrens’ education or save to trade up to a bigger home.

Examples of long-term goals are: pay into a pension fund, pay off a mortgage or to plan for long term financial security.

Once a person/family has identified their goals and they can then work out how much they will cost. To achieve the goals a person may need to start a regular savings plan to allow a sum of money to build up or cut back on some financial outgoing to allow for paying off a loan each week or month and clear it more quickly. img512|left>

Making a Budget

Sources: www.itsyourmoney.ie www.mabs.ie

A budget is simply a plan of money you expect to receive and you you expect to spend it. A budget will show how much money is coming into a household, how much money is going out, how much money can be saved or paid off borrowings and how best to plan for spending in the future.

Working out a Personal Budget

The first thing to do is to record all the information on a personal budget sheet. Here are two sample personal budget sheets:

www.mabs.ie - Personal Budget Sheet

www.itsyourmoney.ie - Budget Planner

Remember to fill out either weekly or monthly figures, whichever suits the situation best.

Income includes:

wages and salary, after deductions

social welfare benefits including childrens allowance payments

contributions for any other person such as grown-up children (known as non-dependents)

calculating ones income provides an opportunity to check that you are paying the right income tax and claiming all the tax allowances due.

Expenditure includes:

Mortgage/rent

Housekeeping (food, toiletries, cleaning materials etc)

Gas, electricity, phone, broadband

TV license/cable or satellite

Loan repayments (e.g. car, term, credit union)

Clothing/footwear

Insurance (e.g. house, car, health, life, mortgage protection, travel)

Car costs (e.g. petrol, parking, NCT, tax, tolls, servicing/maintenance)

Other travel (e.g. bus/train tickets)

Waste charges

Leisure (e.g. eating out/takeaways, entertainment, alcohol/cigarettes, club memberships, newspapers/magazines)

Occasional expenses (e.g. birthdays, donations, holidays, medical/dental expenses)

Family expenses (e.g. babysitting, pocket money for children, childcare)

Calculations

Work out the total income (call this sum A)

Calculate the total outgoings (call this sum B)

To find out how much money is available to pay off loans or save take away the total spending (B) from the total income (A), and the balance (C) is the amount available to pay creditors or save. If the income and expenditure do not match then either (A) the income will have to be increased or (B) the spending will have to be reduced.

A budget throws a new light on spending and spending patterns and is a very useful tool for any family that wishes to get control of spending to meet current expenditure needs and to achieve short, medium or long term goals.

Build an Emergency Fund

The Financial Regulator recommends that individuals and families build up some savings which are readily available in the event of reduced income or a redundancy situation. A fund of three months income is recommended.