Budgeting Advice Every Professional Should Have
July 9 2019 - As an HR professional, you likely deal with a number of tasks. One of them could be managing finances, so getting better at managing it in your personal life is key. Castle Finance has provided tips on budgeting as well as loans which are both significant parts of finance.
What is a Budget?
Budgets are one of the masterminds behind good finances. In case you aren't sure exactly what a budget is, it's a summary of your income and expenses on a monthly basis. In terms of why you need a budget, it's usually the first step you should take if you want to take hold of your finances and get them in a good place. Although a budget doesn't have to be monthly, seeing as your household expenses tend to come out every month, it;s recommended that you do a monthly one.
Creating a Budget
For those who have never created a budget before, you can rest assured that it;s a pretty straightforward process. Below, you;ll see a few steps that could get you on the right track.
Step 1: Calculate Your Income
The first thing you;ll need to do when drawing up a budget is calculate your income. This means you should list out all of your income, which could include wages, pensions, benefits and any other source of income. For any payments that you may not get monthly, you'll need to break it down into a monthly amount. If, for instance, you're paid weekly or four weekly, multiplying the weekly figure by 52 and dividing it by twelve would give you an exact monthly figure.
Step 2: Create a List of Expenses
Once you've got a clear indication of how much you're making, you can go on to write down a list of expenses. This should give you some insight regarding how much you're spending every month, which is a crucial part of healthy finances. For this task, it's helpful when you use your bank statements just so you have an accurate figure to work with.
Step 3: Deduct Your Expenses From Your Income
This step will tell you exactly where your finances are as you'll be able to tell whether you're living within your means. In the case that you're spending less than you're earning and have money left over after expenses go out, you've got what's called a 'budget surplus'. However, if you're spending more than you earn, then you have a 'budget deficit'.
What is a Loan?
A loan is money borrowed, which is usually expected to be returned with interest. The terms of the loan are agreed by both parties involved before the exchange of money or property. In terms of how it works, it's different for each lender. Some things that will be outlined in the agreement are whether collateral is needed, the maximum amount of interest that will be charged, and the length of time before payment is required.
There are different types of loans out there, so you'd need to think about which would best suit your needs. Two common types of loans are secured and unsecured loans. The former is backed or secured by collateral while the latter isn't.
It's also crucial to note that interest rates have a huge effect on loans as well. The higher the interest rate, the more you'll be paying on a monthly basis. For example, if you owe $10,000 on a credit card with 6% interest rate, and pay $200 each month, it will be paid off in 58 months, or nearly 5 years. If that individual had a 20% interest rate, with the same balance and same paid back each month, it would take nine years to pay this back.
Also, know the difference between simple and compound interest. While simple interest is the interest you pay on the principal loan, compound interest is the interest you pay on top of the interest which equates to paying far more back.
An example of simple interest would be if somebody took out a £300,000 mortgage from the bank, with a loan agreement that stipulates an interest rate of 15% for that loan. This means the borrower would have to pay back the original amount, taking into consideration the 15% interest rate, which would equal £345,000.
With compound interest, the interest is applied on the principal but also on the accumulated interest of previous periods. The borrower owes the bank the principal, plus the interest for that year. The next year, there will be the additional sum of the interest from the first year.
For more information and professional advice on managing your finances, contact Castle Finance on LinkedIn.