Top 3 Budget Barriers and How to Avoid Them

Top 3 Budget Barriers and How to Avoid Them

Budgeting can be a life-changing process. These top 3 budget barriers will be familiar, but help is at hand. It takes all the stress out of money management and once you’ve got a good system up and running, it will take minimal effort to keep your financial affairs in order. However, some people fall at the first hurdle because of small budgeting challenges that can be easily overcome with a bit of careful consideration and forward planning.

bridging that budget gap -
bridging that budget gap –

To help you get a head start on your budgeting journey, we’ve put together our top 3 budget barriers and how to avoid them:

Problem 1: Underestimating costs

When setting up your initial budget figures, many people will incorrectly estimate how much they spend on things. Then, after a few months, they realise that they are suddenly massively over budget before they’ve even really begun.

Solution: Start from scratch

Although it might seem like a lot of hard work, once you’ve got this step sorted, things will be an awful lot easier for you going forward. If you need to get realistic spending figures, take a look through your bank account or credit card statement and tally up what you’ve spent on petrol, food, clothing etc. If you need accurate figures for your on-going bills, you should be able to phone your electricity, gas or water supplier and ask them what the cost per month is. A slightly more long-winded, but probably more accurate, way to do this would be to save every single receipt in an envelope for 3 months then add up all the receipts in each category and divide it by three to get a realistic figure of what you spend per month. It’s also a good idea to add an additional percentage to each of your monthly figures (around 5%) to cover any fluctuation in spending that can’t be controlled. For example, insurance costs often rise throughout the year and you can’t always predict this in advance.

Problem 2: Unexpected unbudgeted costs

This problem can range in severity but can throw people off in equal measure. For example, you may have people over for dinner one night, which sends you £50 over your food budget for the month, or you may have a car accident which is covered by insurance, but you need to stump up £500 excess to pay for it. At his point if you haven’t budgeted or saved this amount you might find yourself in a situation where you need money quickly. A short term or payday loan at this point might come in handy, but make sure you pay it back as early as you can afford so it doesn’t affect your credit rating.

Solution: Add some breathing space

Breathing space in your budget will help you ‘plan’ for these unexpected costs without flying into a panic that you’ve wrecked your budget. You could increase your food budget by £50 every month so that on the months when you need that extra money, it’s there for you, and on the months when you don’t need that extra money, you can put it towards something else (like, Christmas, or paying off debts). It’s also a good idea to include an emergency fund in your budget. This can be used for car breakdowns, washing machine replacements, leaky roofs etc. This will really take the stress out of life’s little surprises! 

Problem 3: Changes in life situations

As well as all of the unexpected events we go through in life, there are also many planned events that can throw us off budget. What if you suddenly find out you’re expecting a baby? Or you want to start planning a wedding? Where is that meant to fit into your budget?

Solution: Review, revise & modify

Your budget is a living, breathing document that needs to be adapted to suit your ever-changing life. It allows you to deal with your most pressing financial requirements as well as helping you to achieve your big life goals. Those things aren’t fixed. They change. And your budget has to be able to change with it. Don’t be scared to edit your budget to suit you.

Why Credit Ratings are Important

Why Credit Ratings are Important and How They Can Help You

If you’re in need of a financial product, the likelihood is that your credit rating will be an important factor in whether or not you will be accepted, as well as how much it will cost you. So Why Credit Ratings are Important and How They Can Help You. This can apply, not only to loans and credit cards but also things like car and home insurance too. Your credit rating really does make a difference and any black marks on your score can be felt for months or even years to come.

credit score gauge -
credit score gauge –

The good news, however, is that you have the power to change and improve your score, it just takes time, patience and self-discipline. So here are our tips:

What exactly is a credit rating?

If you’re looking to apply for a loan or other form of credit, then knowing your credit rating or credit score is paramount.

Here’s a story as to why it is important to check your credit rating and not let a £24 debt spoil things for you

Lenders use this information to decide how much to lend to you and the price. Some people think that, if they have never bought anything on credit and don’t own a credit card, they will have a good credit score, but this reluctance to borrow could actually work against you. You need to have a record of borrowing and paying back.

You can help yourself by paying things like your mobile phone bills on time. This could help to increase your score, as it shows how you are a reliable and stable credit customer.

You can check your credit rating by using one of the agencies like Experian, Equifax and Noddle. These sites calculate your credit score and often also provide information on how you may be able to increase it.

Why is your credit rating important?

Your credit score is a tool that a lot of lenders use to check whether you are a good risk for credit. It helps them judge whether you will be able to pay back the money they lend you based on factors such as your repayment history and how much you are borrowing.

How can your credit rating help you?

Lenders are trying to predict your future behaviour based on your previous financial actions. If you have a poor credit history due to missed payments or have not established a track record because you seldom borrow, it may result in you only being eligible for a higher interest rate on something like a credit card or a loan, instead of a preferential rate.

Your credit rating will be an important factor if you want to get a mortgage and again, if you have a healthy credit score you could secure a better rate of interest. Usually, the better your rating the better your loan terms will be.

Sometimes even landlords and estate agents use your credit score to check your reliability. So having a less-than-perfect credit score could even make it more complicated for you to rent property.

How can you improve your score?

The Money Advice Service website has many tips that could help you improve your credit score. Some of these include:

  • Register on the electoral roll – Being on the electoral roll is very important for your credit score. You can register to vote online or by post.
  • Check for mistakes on your file – You could be being penalised for things on your credit report which are not correct. That’s why checking everything on there is so important.
  • High levels of existing debt – any existing debt should be affordable to you. Using the full extent of your credit facilities could also be seen as a sign of financial difficulty.

So if you’ve budgeted and you’re about to apply for a mortgage, payday loan, short term loan, credit card or take out any purchase agreement check your credit rating first – and if it’s not looking too good, take steps to improve it.