Accounting for your outgoings

Creating a household budget is key when applying for a loan, according to Phil Archer, manager at d&t, who explains how to produce one

When applying for a loan, one of the main things you need to consider is whether you can afford the repayments. This is also one of the things a lender will look at in your application.

One of the more accurate ways you can determine this, and an excellent way to present this in your business plan, is through a household budget.

Unless you’re a natural at maths, you’re not necessarily going to have been taught what to do when needing to track your finances.

A household budget is a plan that allocates your household income against where your money goes each month. This includes what you spend on rent/mortgage, food and utilities, to name a few. To put it in simple terms, it’s the money you use to live off.

So how do you create a template or even start to work out your household budget?

This article will give you a good idea about how to create a household budget and act as a guide as to where to start. As you need to include all your outgoings, it can be quite a task to remember where every penny is going.

What should you include?

The simple answer is everything your household spends each month.

You don’t need a category for every single subscription you pay for. However, everything you do pay for needs to be accounted for somewhere. When it comes to things like food or clothes, which may vary month on month, a realistic average should be given.

Here is an example of a few things to consider:

• Mortgage
• Utilities
• Food
• Clothing
• Eating out (including the odd Costa treat)
• Car fees (hire purchase/leases, tax, insurance, maintenance, etc)
• Petrol
• Savings
• Loans/credit cards
• Subscriptions (Sky, Netflix, Amazon Prime, HelloFresh, etc).

How do I find out the information I need?

Finding out the information you need to create your household budget plan is as simple as running through a bank statement.

You can check your monthly outgoings, or even as frequently as weekly or daily, using online banking.

Go through each transaction and put it in the correct category. You will also need to account for all regular income as well. If done correctly, this will account for all the money that’s coming in and out.

Why is this so important?

As stated above, producing a household budget is one way of showing loan providers you can afford to pay back the loan. It can also be a useful indicator of how much you can realistically afford.

It’s also a good way to get a grasp on your household finances to help make sure they’re in a good place before you take the leap into being a business owner.

It will highlight any areas you can make changes to in order to save a bit more, which will help increase your reserves in case you need something to fall back on.