youthmoney

Ask a young person about to make a purchase – can you afford that? There is a fair chance that the honest answer is, “I don’t know”. Even if they have the cash, there may be doubt about whether that money isn’t properly earmarked for something else.

The working tool that removes such uncertainty is known as a budget. With a budget, amounts are allocated to different categories, and the total outgoings are less than the available income.

Here are some key principles of setting a budget:

• Use weekly or monthly amounts – don’t mix them up.
• To convert weekly payments to monthly, multiply the weekly payment by 52, then divide the result by 12.  Just multiplying by 4 is not accurate enough
• To convert monthly payments to  weekly, multiply the monthly payment by 12, then divide the result by 52.
• Make sure the amounts are realistic, preferably based on actual spending recorded in previous bills or statements.
• Start with a rough copy – and do as many as you need to get it right.
• Include fines
• Don’t forget travel costs – for visiting family, getting to work, shops or wherever.
• Include any loan or catalogue repayments.
• Include an amount for emergencies such as equipment breakdowns and other “lumpy” expenditure like Christmas and birthdays.
• Keep the budget under constant review. If some part of it isn’t working, try to change it. It is a dynamic tool, changing to new events like getting a job, finishing paying a fine, or taking out a loan. Encourage young people to use their budgets actively, not be ruled by them.

Try an online budget calculator, such as the one on the money made clear website