When you first did your IVA budget you were probably pretty shocked. It was possibly the first time you saw in black and white just how much it costs to just live on a day-to-day basis!
You may never have made a budget before – you may not even know what goes into and come out of your account – but an IVA demands that you not only make one, but submit it to creditors and then if approved live by it too.
So how do you come up with a realistic budget that you can live by for five years while still satisfying your creditors that you are not wasting money? Here are a few tips to help you:
Start with what you know – essential fixed expenses
What are the essential fixed bills you have to pay every month? These would include rent or mortgage, council tax, insurance policies, mobile and cable TV contracts and, if you pay by direct debit, utilities bills. You may have arrears on your utilities bills, which your IP may suggest be put into the IVA rather than be paid back monthly through a direct debit from your bank account. Once these major ‘fixed’ expenses are taken account of, you will be left with a lot of gaps to fill in for items which you may buy infrequently or that fluctuate in costs.
Next do your essential but variable living expenses
Top of the list for these would be things like food, clothing, transport and travel. These will fluctuate depending on how many people you have in your household and where you work. You may be able to estimate within £10-£20 what these are every month if you look at some of your receipts or bank statements.
Now look at your non-essential expenses…
This will always be a hard one to work out, not least because there may be some things in here that you enjoy, but have to reduce significantly or even eliminate. You may have forgotten half of what you spend your money on and rarely remember the expense until it crops up.
Among these would be:
- Extensive cable TV packages
- Extensive mobile phone contracts
- Cigarettes and tobacco
- Beauty and hair treatments
- Birthday and Christmas presents
- Expensive nights out
- Trips to cafés or coffee houses
- Frequent new clothes purchases
- Magazine subscriptions
- Wasted rental fees/late charges
- Charity subscriptions
…but don’t cut everything to the bone
Some people automatically look at the non-essential expenses and cut them out straight away. This is a mistake. There are still some things that you should keep in, although at a very low level, otherwise you run the risk of you getting fed up, even depressed, and letting the IVA fail because your budget is unrealistic.
If you work you may have to make sure you have some budget for the occasional new item of clothing or a hair cut to ensure you remain looking professional while employed. However, this must be within reason.
You can still keep your mobile contract, but it may have to be reduced to a much more basic package. Likewise cable TV.
Adjust and adjust until you make it work.
Your first draft of your budget will probably not work. What you think of as necessary may well be classed by your IP as not, and the amount you spend every month may not leave you with a surplus at all. This is where you need to adjust your budget to come in with the surplus required while still maintaining a reasonable standard of living.
For example, do you have you hair cut and coloured every 8 weeks? You may have to drop that to every 12-16 weeks. Do you spend £30 a person on Christmas gifts? You might have to drop that to £10-15.
Finding ways to have what you want but which fits within your IP’s criteria for spending is vital if you are to pay back what you owe and enjoy a comfortable standing of living for the next five years.