Personal Home Budgeting

With times tough and getting tougher, household budgeting is more and more important. Each year thousands more families and individuals are finding themselves unable to make ends meet, or at least finding themselves without cash when they need it. In many cases the gap between income and expenditure is genuinely impossible to close, but in many others the problem is simply a failure to budget and plan effectively.

Financial woes as a result of failure to budget properly hit families at every income level from underprivileged families living hand-to-mouth to families on very healthy incomes, often a double income, who are – and this is the surprise – also living hand-to-mouth.

It’s a sad fact that many people on what could be comfortable incomes who, in their professional lives, are responsible for keeping companies large and small solvent, may not apply the same discipline to their personal household budgets.

There’s nothing essentially difficult about preparing household budget. There are three steps involved: first is to add up how much is coming in each month; second is to add up the fixed and essential costs occurred in the same period, and; third is to subtract the second from the first and allocate the remainder to inessential costs.

Of course there are any number of variations in exactly how that will be done. If expensive food and wines and lavish entertaining are part of the essential, perhaps it’s time to define just what that word means to you. Other costs such as insurance and savings which could properly be regarded as essential may have to go by the board. But essentially it’s not difficult to reach agreement, either with yourself or your domestic partners on how the available income should be allocated.

Drawing up a budget is the easy part. The phase where so many people come unstuck is sticking to it. We all know the situation: you’ve spent all of this week’s disposable income on buying books when you suddenly discover your favourite band is playing tonight at a very expensive venue. So you borrow £100 from next week’s surplus cash. The problem is that next week a friend arrives unexpectedly to stay for a few days and you just have to entertain them. By the end of the month, there’s no money to pay the phone bill, so you put it on the plastic and that’s where the trouble begins.

We don’t see it as a twenty-first century concept, but what’s needed here is discipline. If you have only, say, £80 to spend on inessentials this week, then once you’ve spent it you must regard yourself as, to all intents and purposes, broke. Stay home, don’t spend, and wait for next week. But then again if all of us, including the government, were able to do that, life would be very different every month.

Salary Calculator

What’s Your Salary Really Worth?

It’s a paradox of human nature that it’s not difficult to find two people, both on similar salaries and both living similar lifestyles, who each have a different perspective on what their salaries are worth. One may feel reasonably comfortable with their level of income while the other is perpetually feeling short of the ready.

The truth is that there’s a very wide range in the worth you can get out of a fixed salary. Just as all of us have the same number of hours in the day yet make very different use of it, so one person can make £50,000 a year go a long way while another will always feel that it’s necessary to scrimp and save to make the same salary stretch to cover the month.

Of course a large part of it depends on what part of your salary is disposable. And this depends on what your fixed costs are. It may depend on factors as obvious as whether or not you own your own home or are paying rent, whether you use public transport or are paying the upkeep on a car and even such other factors as the kind of lifestyle you feel you deserve.

Even given these variations in fixed costs, there’s plenty of scope for making the same amount of disposable income either comfortably cover the whole month or run out completely by the end of the second week. If you’re resigned to living within your income and dedicated to doing so, you’ll probably be reasonably comfortable on whatever you have. On the other hand if, like many today, you live with the feeling that you should be able to enjoy whatever takes you fancy, and hope for an unexpected windfall to cover any problems that causes, you’re going to be living a stressful life in the permanent grip of the feeling that you’re more or less broke.

There are all kinds of economic formulae for calculating exactly what your salary is worth in terms of buying power or share in the net wealth of the community, but the truth is that the benefit you get from the money you earn is very largely subjective. We all know the feeling of managing to avoid incurring some expected expense, the way it makes us feel to have a little extra unexpected cash. In fact, with a little financial discipline it’s possible to feel like that every day, just by cutting back on unnecessary expenses.

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We’ve grown accustomed to having the latest and the best of everything, when we can actually get by very well on much less. Do you really need a new computer every year? Do you really need to drive a Volvo? Of course many of these choices are lifestyle and self-image driven. A little self-examination may help us to choose between the essential and the merely satisfying.

How much is your salary worth. The bottom line is probably that it’s worth just as much as you want to make of it.

Mortgage Calculator

Mortgage Loan Rates over the Last Twenty Years

1991 was a year of financial catastrophe for many British homeowners. House prices were through the roof and many mortgage holders found themselves owing more on their mortgages than their homes were worth. The villain? Base interest rates which had peaked in late 1989 were still over 13 per cent at the beginning of the year. More than a hundred thousand homeowners lost their property that year.

Why were interest rates so high? Largely because the housing boom had run out of control, bringing back the high inflation which Margaret Thatcher had brought under control in the early years of her government. At that time the rate had hit 17 per cent, a figure unthinkable to anyone under 40 these days.

It was those high interest rates at the beginning of the 1990s which brought inflation back under control. Since then the rate has mostly continued to fall steadily. By the end of 1993, the base rate was down to 5.3 per cent. It hovered around that figure for the next few years, hitting a peak of 7.5 per cent in June, 1998, before beginning the more or less steady downward fall to its present historically low rate.

What do these wide swings in interest rates mean for the economy today? It’s difficult to imagine a return to double-digit interest rate figures but, with Britain in the grip of a recession and facing the burden of enormous debt, it is not inconceivable that the Conservatives would again look to high interest rates as a kind of economic shock therapy.

Can history repeat itself? Is it impossible to imagine the spectre of middle class families now paying £700 a month on their mortgages finding themselves with a monthly payment in excess of £2,000?

Levels of household debt are now much higher – an average of about £60,000 – than they were in the early 1990s. The effect of high income rates now would be catastrophic on British households. Even now there is a home repossessed every 13 minutes in Britain and a steep rise in interest rates would increase that a hundredfold. 
The Bank of England’s current economic policy is committed to keeping both inflation and interest rates down. However successive British governments have been suffering from a surfeit of optimistic thinking and budgeting since the beginning of the New Labour overhaul of Britain’s economy.

The country is now habituated to life at high debt levels and lulled by low interest rates. Could Britons survive a life without credit after the excesses of the past ten years or so?
It could be that they may have to, and a review of the historical interest rates only confirms that fact. The rapid fall in interest rates at the beginning of the 1990s lulled the country into a sense of eternal prosperity.

Given the history of the base interest rates, eternity could turn out to be a much shorter time than anyone expected.

VAT Calculator

Despite its almost four decades of history in the UK, the Value Added Tax or VAT is still seen by many people as complex and difficult to understand. In fact the principle of the tax is simple: it’s a tax on the difference in value between good or raw materials entering the hands of one party and the value of the same articles when they’re next passed on. If I’m a bookseller and I buy a book from a publisher for, say, £6 and sell it to the public for £10, the VAT is paid on the £4 difference, the value which has been added to the article while it’s in my possession.

The tax, like similar taxes worldwide, has always been a favourite for governments who don’t want to be seen increasing taxes on incomes or property or other resources which are seen as personal.

VAT was introduced in 1973 at a standard rate of 10% on all transactions. What could be simpler? So why is it now seen as such a difficult concept to understand?

The problem with VAT in the UK is historical, and historical in the on-going sense. Successive governments have fiddled endlessly with it, lowering and raising it, introducing exemptions and different rates.

In July 1974, the 10% flat rate was lowered to 8 per cent. Later the same year, a new special rate for petrol of 25 per cent was levied. This was then reduced two years later to 12.5 per cent.

Margaret Thatcher was the next to adjust VAT, scrapping the higher rate in 1979 and introducing a single rate of 15 per cent. In 1991 that rate was raised to 17.5 per cent and in 1994 a new low rate of 8 per cent was introduced for heating fuel and power. In 1997 that rate was reduced still further to 5 per cent.

Those rates were the longest lived in the history of VAT, remaining stable until the higher rate was reduced to 15 per cent in 2009. The respite was only brief, however, with the 17.5 rate returning the following year and then being raised to 20% in 2011.

Exemptions to the tax have also been a yo-yo affair. Current exemptions cover most food, medicines, books and some transport.

A number of exemptions which formerly existed have been done away with when government needed a quick fix for a budget deficit. Some of those include takeaway food and other snacks and home improvements.

UK VAT Calculator

In effect, VAT is a consumption tax. It is calculated by summing the costs of producing and distributing goods or services less the cost of acquiring raw materials and other inputs to production.

The historical differences between tax rates have generally reflected goods and services which the government deems either essential or luxury. The need to define categories of goods taxed at different rates or not taxed at all has also led to absurd categorisations such as that applying to nuts. Shelled nuts are deemed a snack and thus taxed at the higher rate. A peanut in the shell, however is a food (the criterion being that the consumer must prepare it by removing it from the shell) and thus not subject to tax at all.