People realise they need to get their finances in order at different points. While for some, it’s when they want to make a large purchase such as a car or home, for others, it may be when retirement planning begins. No matter what your reasons are, this budgeting and loan advice from Castle Finance should help you get on track.
A budget is something anyone who wants to get on track financially needs. What it does is helps you see where your money is going and how it’s being managed. It is often advised that you do a monthly budget as your expenses tend to come out every month.
In terms of its usefulness, budgets can help you identify areas where you could save more money.
Creating Your Budget
Outline Income: For those ready to learn how to create a budget, the first step is working out how much you bring in every month. Take the time to think about every source of income that you have, no matter how small. If you earn weekly or 4-weekly income, ensure you convert the figures into a monthly amount. You can achieve this by multiplying the weekly amount you make by 52 and then dividing it by twelve.
List Expenditures: After writing down your income, you’ve then got to carefully list your expenses. Try not to leave anything out as this could throw your budget off. Use anything from receipts to your credit card statements to identify your spending patterns. You could also monitor your spending over a month or two, so you have an idea of what your spending is like. For any expenses, you only have once a year or infrequently, divide it by twelve for a monthly amount.
Draw Up Your Budget: The final step in creating a budget is subtracting your expenses from your income. Through this, you’re trying to see whether you have a ‘budget deficit’ which is when you’re spending more than you’re making or a ‘budget surplus’ which is when you have money left over after paying for everything.
Taking Out a Loan
Every loan has different terms, and the difference between each could affect your financial standing. Decide whether taking out a loan is the best option for you.
One of the first things to know about a loan is that they’re either secured or unsecured. In case you don’t know the difference, secured loans use collateral and great examples are a car or mortgage loan. An unsecured loan doesn’t, however, require any collateral but has higher interest more times than less. Everyday examples you can pull from are credit card loans or signature loans.
Another type of loan that you want to be aware of is revolving vs term loans. While revolving loans are ones that you can continuously spend and repay, fixed terms have agreed monthly amounts and a set period in which they have to be paid.
Many people end up in sticky situations when it comes to loans by not choosing favourable terms when it comes to interest. Loans that have high interest could equate to higher monthly payments or having to pay the loan back over longer periods of time. In a similar regard, if you get a compound interest loan, you’d have to pay interest on interest. However, a simple interest loan would mean only paying the interest on the principal loan.
For more information on budgeting or loans, reach out to Castle Finance on Linkedin.