A fundamental requirement for getting in control of your finances is to understand what you have coming in and going out each month.

It is amazing how many people do not have a good understanding of these basic facts and then wonder why they can never seem to keep their money under control.

The advice given below helps you understand your monthly income and expenditure. To find out more click on the following links or continue reading below.
 

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Monthly v Weekly

Some people receive their wages on a weekly basis. There are also many expenses that we have on a weekly basis – for example the weekly shopping. However, most regular bills and debt repayments happen monthly. Therefore it is useful to think about income and outgoings over a month when trying to get your finances under control.

You will be able to understand your income and outgoings by following the simple steps listed below.

1: Add up your total monthly income

Add together all the income coming in each month.

Include all the money you receive from wages after tax, pensions, benefits and other income like child benefit, tax credits, etc.

Make sure that when adding your wages you use the figure you receive after tax is deducted.

If you earn overtime or commissions, you should really only include what is sustainable over the longer term. For example, take a sensible average of what you earned in the last 3 – 6 months. That way you will not include an income that is too high and un-realistic.

If you receive any of your income weekly (for example you receive weekly wages), then take your net pay (after tax) and multiply this by 4.33 – this will give you the monthly amount. It is the same as multiplying by 52 (weeks) and dividing by 12 (months).

2: Add up your essential monthly living expenses

List everything you spend each month. Include Rent, Mortgage, Food shopping, Electricity / Gas, Car HP, Car running expenses, Childminding, School costs etc.

The best way to calculate your monthly living expenses is to use the Beat My Debt living expenses guide. The guide will help you remember all the different living expenses you have and give you give you some guidelines as to what levels of expenditure to use.

To access this guide, see the “Useful Links” box below.

Remember: Your essential living expenses do not include payments to unsecured creditors such as credit cards, store cards, and personal loans. We will look at unsecured debt payments separately as they are not included as part of your essential living expenses.

3. Calculate your disposable income

Disposable income is the money you have left over after all your essential monthly outgoings are paid for.

Your disposable income can be used for paying unsecured debts, buying the non essential things you might want or even saved for a rainy day.

To calculate your disposable income, simply subtract your total essential monthly living expenses from your total monthly income. 

For example, if your total income is £1600 per month and your total essential outgoings are £1300 a month, then your disposable income is £300 per month:

£1600 - £1300 = £300

The next step

Your next step is to understand your unsecured debts so you know how much of your disposable income you will need to use to pay them.

If you have no unsecured debts, you can go straight to deciding your money goals.