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Money Basics

In order to be able to properly manage money, financial planning is necessary.

There are three different types of money management:

1. Short-term: Money required on a day-to-day basis/within next couple of months
2. Medium-term: Loans and anything up to five years
3. Long-term: Mortgage and retirement planning and anything over five years

All types of money management require budgeting.

What is a Budget?

A budget is an estimate of income and expenditure over a given period of time. It is a mechanism for short-term financial planning because it indicates whether or not income and expenditure balance. A good example of this would be monthly wages versus household bills/mortgage/rent etc. By keeping a record of your budget, decisions can be made on your current financial circumstances.

Helpful Hint:

It is always a good idea to check your bank statements every month and make sure you note down important annual financial commitments such as car insurance, car service/MOT, household insurance and holidays. These can put a strain on any budget and as such are very important to remember.

• If your outgoings are more than your income
  • Debt will arise if no action is undertaken.
• If your outgoings are less than your income
  • The excess can either be spent on a needed item or saved

Managing your budget can be difficult. It is best to categorise your entries into 'wants' and 'needs'. If your outgoings are greater than your income, you need to look at reducing your outgoings. It is surprising how much you can save by cutting back on non-essential items (wants) such as outings, newspapers, magazines and replacing non-worn out items.

The benefits of budgeting include:

• Knowing your financial situation
• Being able to make informed financial decisions
• Being aware of issues that need to be addressed
• Being aware of financial problems in good time
• Financial efficiency