Budgeting and Financial Statements
Useful information, documents and links to help
What is a Budget?
A budget is a financial plan that shows where your money is coming from, how much is there and where it is all going.
It is a plan to use as a basis for saving, spending and borrowing. It allows you to see your income against your expenses so you can make informed financial decisions.
Creating a budget answers 2 key questions:
1. Do I have more money going out than coming in?
2. What can I afford to spend?
The Benefits of Budgeting
A budget allows you to keep your finances under control. You could potentially prevent yourself from making bad financial decisions, and in turn, start saving more money.
If you stick to a budget you can make amendments if there is a change and adapt more easily. You may feel less stress associated with managing your money. You can also pass on what you have learnt to your children.
The goal of a budget is to create an outline for your money that puts you in control, so that your money doesn't control you.
What is a financial statement?
A financial Statement is a document used in debt advice that is more than a simple budget. It still shows income and expenditure but is more of an accounting tool showing a projection of actual figures and liabilities.
How to do a Budget
We have broken this down into 6 easy steps:
- Identify all income
- Identify all expenditure
- Decide whether weekly or monthly and convert the figures
- Add all the figures to the budget or statement and total the income and spending
- Explore the result with your service user/client
- Increase income and reduce spending
Step 1 – Identifying Income (it is important that all income is included in a budget)
This includes income from all benefits, child maintenance, wages, tax credits, pensions, income from non dependants and lodgers, income from capital and savings. This list is not exhaustive.
Check bank statements or account pass books to check the amount and the frequency of this.
Step 2 – Identify all Expenditure
It is important that all spending is identified and included on the budget or the budget will not make sense and any debt options agreed may be wrong.
Bank statements, receipts and a spending diary can help identify this. There are some spending apps, such as Spendometer
that could help. Some creativity could be needed if a client is particularly vulnerable, for example, could they tick a simple spending chart box?
Step 3 – Converting the Figures
To ensure that the budget is as accurate as possible all figures used must either be weekly or calendar monthly. It does not matter if the figures are rounded up or down, as long as you do the same with all income and expenditure throughout the budget or statement.
If you are doing a weekly budget, convert:
- monthly to weekly = x12 then ÷ by 52
- quarterly to weekly = x4 then ÷ 52
- annual to weekly = ÷ 52
- fortnightly to weekly = ÷ 2
- daily to weekly = x7
- 4 weekly to weekly = ÷ 4
If you are doing a monthly budget, convert:
- weekly to monthly = x52 then ÷ by 12
- quarterly to monthly = x4 then ÷ by 12
- annual to monthly = ÷12
- fortnightly to monthly = x26 then ÷ by 12
- daily to monthly = x7, then x52, then ÷ by 12
- 4 weekly to monthly = x13, then ÷ by 12
Step 4 – Add the Figures to the Budget
These figures then need to be added to a budget sheet or a budget tool. If you are out and about and have no online access you can print and use the budget sheet in Appendix B.
There are also a number of budget tools available online that you can feed this information on to, that can work out the calculations for you! It is a matter of choosing the best option for you and/or your organisation.
Some Budget Tips
- Make sure amounts are realistic
- Make a rough copy first
- Don't forget one-off or annual expenditure
- Include an amount for emergencies and things like Christmas and Birthdays
- Re-do a budget when things change, for example; if you change your job or end work, if you finish paying a fine or debt, or if you take out a loan.
Step 5 – Explore the result with your service user/client
- Does your client agree with the budget result? If yes, you know you are on the right track. If not, why not? Are they spending more or less?
- Has any spending been over or under estimated?
- Is anything missing? Is the amount indicated enough?
If there is anything that cannot appear to be explained, please ask your client. If you are not sure or the budget is complex, for example, there is self employed income or a complex family situation, please refer to an advice agency for further advice.
Step 6 – Increasing Income and Reducing Spending
There are several ways that your client and their family may be able to increase their income that vary from checking benefit entitlement to getting a second job. See below for a link for further help and information on other ways of increasing income.
Download a PDF Guide to Increasing your Income