The first step to regaining control of your finances and beating a debt problem is understanding what you have coming in and going out each month. It is amazing how many people do not have a good understanding of these simple facts and then wonder why they can never seem to keep their money under control.

MONTHLY VS. WEEKLY
The advice given below helps you understand your income and expenditure on a monthly basis. Many people receive their wages on a weekly basis and there are many payments that we also make weekly – for example the weekly shopping. However, most 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. If you really want to make a start and get organised, why not use the Beat My Debt on line system. 

STEP 1: CALCULATE YOUR TOTAL INCOME AFTER TAX
To understand your total household income each month, you need to add up all the income coming into the home each month. This may include money from wages after tax, pensions and benefits.

If you receive any of your income weekly (for example you receive weekly wages), then take your net pay (after tax) and times this by 4.33 – this will give you the monthly amount.

Include all other income like child benefit, tax credits, etc. 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.

STEP 2: CALCULATE YOUR ESSENTIAL MONTHLY OUTGOINGS
List everything you spend each month. Include Rent, Mortgage, Food shopping, Electricity / Gas, Car HP, Car running expenses, Childminding, School costs etc.

Some of your outgoings will happen on a weekly basis such as food shopping or fuel meters. If this is the case, simply take the amount you pay each week and times this by 4.33 – this will give you the monthly amount.

Equally, some of your outgoing may not be so regular – for example you may pay a water bill every 6 months or pay for car insurance once a year. If this is the case, divide the expense by the number of months it covers to get an average cost per month which you can add to the monthly outgoings.

At this stage, DO NOT include payments to your unsecured creditors such as credit cards, store cards, personal loans apart from your debt payments

Note: Calculating your monthly outgoings is made easier using the Beat My Debt online system.

STEP 3: CALCULATE YOUR DISPOSABLE INCOME
Disposable income is the money you have left over after all your essential monthly outgoings are paid for. If you have no debt to repay, this money could be saved or spent on other things that you want to buy without running the risk that you will overspend and not have enough to pay for your essential monthly expenses.

To calculate your disposable income, subtract your essential monthly outgoings from your total monthly income. 

Note: Calculating your monthly disposable income is made easier using the Beat My Debt on line system.

STEP 4: LIST YOUR UNSECURED DEBTS
Unsecured debts are all the debts that you own that are not a mortgage, secured loan or car HP. For example, when listing all of your unsecured debts, you must include all credit cards, store cards, bank overdrafts, bank loans and really any other money that you owe which is not secured.

Get out all of your most recent card statements and list the balances. If you have access to online banking, you can often see how much your personal loan balances are. If not, then you should ring your creditors for up to date loan balances.

You should write a list of all the creditors you have, what you owe them in total and most importantly the normal monthly repayment that you should pay them each month. You will then be able to add up the total outstanding to your creditors and the total amount you should repay them each month.

Note: Listing your unsecured creditors and calculating how much you owe them is made easier using the Beat My Debt on line system.

STEP 5: ASSESS YOUR FINANCIAL HEALTH
The final step to understanding your income and outgoings is to compare your disposable income to the amount you need to pay your unsecured creditors each month.

If your Disposable Income is less than the total you need to pay your debts (and it probably is if you have been feeling the pinch) then you need to consider taking some kind of action. This may simply be reducing some of the outgoings you have listed which are not actually so essential. However, if this is impossible, then you may have to consider undertaking one of the debt solutions outlined on this site.

If you do not, then your debts are likely to get worse rather than better.

If your disposable income is more that the total you need to pay for your debts each month this is an ideal position. Then you should decided whether you want to increase the payments so that the debts are paid off quicker or whether you want to use your extra funds in some other way – perhaps increase your savings for a rainy day. 

STICK TO YOUR BUDGET - KEEP A MONEY DIARY
Once you have understood your monthly income and outgoings you can then decide what you need to do in order to keep your finances under control. You may decide that you need to reduce your outgoings or simply ensure that you stick to your budget and do not overspend on the figures you have listed.

In order to make sure you stick to your budget, you should keep a money diary. A money diary is simply a record of what you spend and when you spend it each month. This is deducted from your monthly income so that you can see at any time the remaining funds available to you before your next pay day.

WHAT IS A MONEY DIARY
A money diary is a better reflection of the funds you have available to spend in a month than the daily balance you can get from internet banking or a cash machine. This is because it predicts and deducts at the beginning of the month all essential expenditures which will happen in the month – even those which have not gone out of your account yet. As such, you never have to worry about spending too much because you always know exactly what is remaining to spend before your next pay day.

STARTING A MONEY DIARY
To start a money diary, the first entry should be your monthly income. Then you should immediately list and deduct from your income all of your known and essential outgoings during the month. Then deduct all the known payments to your unsecured debts during the month. If you plan to put anything aside, deduct that in the money diary straight away. You will then be left with the figure available to spend until next pay day.

As you go through the month, each time you draw cash from a cash machine or make a purchase on a card, write this in your money diary and deduct it from the remaining balance. The remaining balance is the amount you have available to spend before any further income is added.