Whether you are a homeowner or a first-time buyer looking forward to taking your first step on the property ladder, it’s more important than ever to keep a tight rein on your everyday expenditure. That not only means making savings wherever possible but also drawing up a formal household budget. Accounting for your hard-earned pennies and pounds with a formal household budget has never been so essential for staying in financial control as the future unfolds.
Borrow with confidence
The introduction of new, tougher mortgage measures has sent home loan approval figures falling, the Daily Mail recently reported. As part of the shake-up lenders are scrutinising applicant’s outgoings in greater detail, in some cases down to how much is spent on haircuts and luxury items each month. Be sure to save time and frustration at the bank by being thoroughly prepared when you meet your lender, budget to hand, after having stuck to that budget for at least three months in advance.
Ultimately, by putting a household budget in place you arm yourself with the plain facts needed to avoid overspending, to start saving and have a contingency plan for changes of circumstance. Use your household budget to slim down unnecessary spending, for example on unused gym memberships, and to build up a clean bill of financial health to reassure lenders.
Prepare for possible interest rate hikes
A household budget is a window on your financial world. With a clear view of all your incomings and outgoings you not only spend within your limits, but can also avoid stressful shortfalls caused if interest rates rise. Householders in the UK are already feeling the squeeze of rising inflation, making this a sensible time to identify future pinch points within your budget. Your budget used alongside the results of an online mortgage calculator such as this one found on the Money Advice Service website helps you assess the affordability of the mortgage you are interested in taking out. Pressure-test your household budget with a view to the future. How high a rate of interest on your mortgage could your household budget sustain? Where could you trim back your spending to cope with rising costs? How could capping your spending on certain things help you prepare for rising interest rates?
Feed your savings
The importance of a household budget cannot be underestimated on many levels. By knowing exactly what proportion of your income is earmarked for essential bills you can avoid defaulting on utility bills and repayments, fund hobbies and splash out on guilt-free luxuries from time to time. A household budget also clearly identifies your ability to start saving or to boost savings accounts with surplus money each month. Save as much cash each month as your budget allows. For example, start small by building up an emergency fund to call upon if your car or boiler needs repairs, or if your find yourself out of work. Banks have useful budgeting tools online or if you can’t access the internet at home why not ask an advisor to walk you through one at your local branch.
A guest post from Amanda Walters