How to budget to fit your income – Part 2: Bills and how to prioritise.

How to plan your budget Part 2

We all know what a bill is don’t we, it’s something we have to pay each month no matter what. But did you know that there are different types of bill?

I first want to explain about Essential Bills. These are the ones that if you don’t pay them you may lose your home, have no heating or not be able to eat. These are the ones that you prioritise above all others when working out your budget – debts, luxury items, travel, fun, these will all take a back step until these items are paid – As Dave Ramsay says, these are your 4 walls and you need to be up-to-date with these before you start any debt payments or savings plans.
So, the top part of my budget sheet has just these items:
  1. Mortgage (or Rent)
  2. Council Tax
  3. Life Insurance & Home Insurance*
  4. Water Rates & Sewage Charges**
  5. Gas & Electric***
  6. Prescription Charges****
  7. Groceries
Now, you may have other items that you feel are essential (some may include clothing in this), but to me, these are the main areas that you need to survive.
* Insurances
I have to have both Life and Buildings insurance as part of my mortgage agreement, but I believe if you have a significant other or children, life insurance is an essential. You may feel differently to me and as I say, it is your money and your budget, so make your own mind up about this.
**Water Rates & Sewage Charges
We have both of these billed to us separately, but you may find they are the same company where you live or are included in part of your rent, so adjust accordingly. We also only pay our sewerage quarterly.
***Gas & Electric
I included these as one payment as we have the same supplier for both – if you don’t, seriously consider changing as you get a better rate when they are with the same company!
****Prescription Charges
I am asthmatic, so for me, this isn’t a luxury, it is essential so that I can breath. I pay for a Prescription Prepayment Certificate because I have more than 2 prescriptions a month, so save a lot of money. Something you should be aware of: If you have an emergency or sudden illness and are given lots of prescriptions or the likelihood of lots of prescriptions in the coming weeks, consider signing up to this. Even if it’s not worth getting a full year’s worth, you can get a 3 month prepayment certificate that will only cost you around £29.10 for the whole 3 months. This works out £6 less than the cost of 4 single items and you can sign up there and then in a chemist (check beforehand) or online and it is valid THAT DAY! (you may need to pay and claim back, ask for the form FP57 at the time of purchase) – Find out more details here – https://www.nhsbsa.nhs.uk/help-nhs-prescription-costs/prescription-prepayment-certificates
Essential Bills for month
Once these are entered, your budget sheet will look like this. You can see I have not added a payment for sewage or prescription charges as they are not due this month (see the notes next to the name). Also, I have allocated my mortgage payment early as I had the funds there and making sure I don’t spend it before the following week when it is due (zero-budget – more on that later).
One other payment that is highlighted is my home insurance. That is because I pay this annually (around £150 a month), so I save £12.50 a month in a sinking fund towards this each year – more about sinking funds (or savings pots) later.
Next on my budget comes the Luxury Bills.
These are things that you sign up to that have to be paid, but in a crisis, you can leave them should the worst happen and you can’t afford it – things like Sky TV or your mobile phone – because what can they do, cut you off? Eventually of course it could get worse and may even end up in court, but essentially, if you stay in touch with them during a crisis, they can be pretty good and although you won’t have use of the services, not paying them doesn’t mean you go hungry.
Luxury Bills are also things that you have signed up to but can be stopped quickly, such as Netflix or Audible, but could include things like children’s clubs, Amazon Prime, or anything else that you pay on a regular basis. There are lots of spaces in the budget to add whatever you want here, these are just some examples to give you an idea.
So that is my criteria for Luxury Bills – things I want to have but could do without if necessary (If you are using the Dave Ramsey method, you may even think about putting these items on hold until you are debt free and be really Gazelle Intense, but again, it is your budget to do how you feel is right for you).
All Bills for month
*Stuff I forgot to budget for – As I have mentioned, I zero out each weeks money so that everything is allocated. Each week, there is always some odd pence, a couple of pounds that I haven’t allocated, so I put it here into the ‘Stuff’ allocation. I will show you later when we come to finalise the budget how I do this, but I let this little savings build up and when it gets to around £50, I pay it off a debt. You can pay it as you go, but I find that this little amount is a nice boost when I pay more of a lump sum and also it can help out when a bill is early or your bra strap breaks and you need a new one – small emergencies as it were. However, I stress that I don’t spend it unnecessarily just because it’s there ;).
So, that’s part two of the budget done – all the bills are now allocated, just debts, transport and savings to go!
How to plan your budget Part 3
See you next time,
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