Budgeting, saving and borrowing (Scotland)

This fact sheet explains about day-to-day budgeting for your business and your household. You can use this fact sheet to find ways of planning and managing your spending.

Use this fact sheet to:

• help you make sure you do not spend more money than you have coming in;
• keep your business and living costs under control;
• find out the different ways you can borrow money to help your business; and
• find out which debt options are available to you.

When should I use this fact sheet?

Budgeting

This fact sheet explains about day-to-day budgeting for your business and your household. You can use this fact sheet to find ways of planning and managing your spending. This will help you make sure you do not spend more money than you have coming in, and that you keep your business costs and costs of living under control. If you have debts, once you know how much money is left over, you will know which debt options are available to you.

Planning and saving

It is important to try and save for occasional costs, for example income tax, car repairs or Christmas. You may be able to earn interest or dividends by paying into a savings account or credit union. This fact sheet explains different ways of saving.

Borrowing

Taking out more credit is usually not a good option if you are struggling to pay essential bills, or are already in debt. There are different ways of borrowing, some of which may be better for you, depending on the situation you are in. This fact sheet will explain about the differences between the various sorts of credit that you can get.

Why is budgeting important?

Budgeting is important because it helps you:

• see what money you have coming in;
• see what money you have going out;
• pay your essential bills on time;
• work out payments to any debts you may have; and
• plan your future spending.

To get started, you need to work out a business and household budget sheet. Call us and we can send you a budget you can use. If you have any questions about filling in a budget, our advisers can help.

Contact us for advice if your outgoings are more than your income.

Working out your business budget

Working out your business income depends on the type of business you have.

Sole trader or partnership

If you are a sole trader or a partner in a partnership, you should complete a business budget.

Working out a business budget is important because it helps you:

• see how much money is coming into your business;
• see how much money you are spending on business costs;
• work out roughly how much income tax, National Insurance and value added tax (VAT) you will have to pay;
• see how well your business is doing and where you may be able to cut costs;
• decide what you can really afford to draw (take) from your business each month;
• plan your household budget around how much you are going to draw from your business; and
• work out affordable offers to your creditors if you think this is the best way to deal with any debts you might have.

Director of a limited company

If you are the director of a limited company, contact your accountant to help work out how much the company can pay you. This is because the company is a separate legal entity to you and its finances should be separated from yours. You can then fill in a household budget based on your household income and spending.

Working out your business income

Use your business accounts, books and bank statements to work out how much money you have taken for sales over the last three months. This will help you work out your average monthly business income, as for most businesses, income is not the same every month. Do not include money for work you have done or things you have sold but have not yet been paid for. Only include money you have actually received. Divide this total by three to get an average for each month.

If your receipts or takings go up and down a lot over the year, you may need to work out the average over a longer period, for example, 12 months. This could be because your business is seasonal.

Make sure you use a period of time that reflects the current income of your business.

Working out your business outgoings

Many of the figures in your business budget will be based on your regular bills or direct debits and standing orders from your bank account. You might not have much control over some of these amounts. It is important that the amounts you put in your business budget are based on your true spending so the budget is accurate.

• Be careful and be realistic

Do not include figures that are less than you are really spending. If the figures on your business budget are too low, you will find it hard to keep to.

• Be sensible about your spending

If you can save money on day-to-day costs, then you will be able to put more money aside to deal with one-off expenses. If you have debts and your creditors don’t think that the amounts are reasonable, they are less likely to agree to reduced payment offers. If you aren’t sure, contact us for advice.

• Give reasons if your spending is high

Your business outgoings may be very different to another business, even if that business offers the same service or trade. Make sure you include everything you are spending. If you need to negotiate reduced payments to creditors, it is important that you tell your creditors the reason why your spending is higher in certain areas.

Drawings

When you take your business's average costs each month from its average income each month, this will tell you what your profit is before tax. To work out how much you can afford to take from your business each month you will need to work out roughly how much tax and National Insurance you will have to pay. You should set aside this amount for when you get your next bill. Our Tax allowances and amounts fact sheet can help you work this out. If you are still unsure about how to do this, contact us for advice.

Before you work out whether this is enough to cover your household outgoings, you should check if there are ways to increase your income or reduce your business outgoings. See Reducing your business outgoings later on in this fact sheet.

For hints and tips on increasing business income, see our website www.businessdebtline.org.

If there is nothing left for drawings, contact us for advice.

Is my business viable?

Your business is viable if:

• you can pay all of your business outgoings on time; and
• you can take (draw) enough money to live on.

Your business is also classed as viable if you have a lot of assets which, if sold, would pay off all your business debts. If you think your business is not viable, contact us for advice.

Managing your money and budgeting for your business

This section gives some useful hints and tips to help you make the right decisions.

Planning ahead

Business income and outgoings can vary from month to month. They depend on a number of things including the time of year and competition from other businesses. There are also unexpected events, such as the loss of a major customer, that could affect your business income. These things can make it hard to pay bills on time or repay debts.

The money that comes into your business is called cash flow. Filling in the cash flow forecaster provided by Start Up Loans Company will help you estimate your income and outgoings for the future. The Start Up Loans Company provides Government funded loans and business mentors. It is designed to help support people with viable business ideas but who have no access to finance. A cash flow forecaster can help you see when you are likely to experience financial difficulties.

It is important to set aside some of the money from when your business income is higher, to cover bills and debts when business income is lower. You could open up a second business bank account to keep this money separate from everything else. Setting up a business overdraft can also help you cope with differences in business income over the year.

Business bank accounts

It is important to set up a business bank account when you are self-employed. This will help you to keep your business income and outgoings separate from your household income and outgoings. Set up an account with a bank that you don’t have any existing debt with. This will strengthen your position if you have difficulty paying your existing bank debts in the future.

By keeping things separate, it will help you to keep records that your accountant will need to fill in tax returns each year.

A second business account can help you set aside money each month for your income tax, National Insurance and VAT bills. You could also put money in this account based on the results the cash flow forecaster gives you to make sure that if your business income goes down, you still have enough to pay your bills and any debts. See more about avoiding cash flow problems on the GOV.UK website.

If you have difficulty setting up a business bank account, contact us for advice.

Reducing your business outgoings

You can look at your fixed and variable costs to see if anything could be reduced. This could help to increase the amount the business can afford to pay you (your drawings).

Fixed costs

Although these costs are usually the same each month, there are still ways of reducing them or managing them more easily.

Business rent

You could try to negotiate better terms with your landlord on your business rent, especially if the property is likely to be difficult to rent out to someone else. If your landlord will not reduce the rent, you could think about whether to end the lease or pass the lease on to someone else and look for cheaper premises. See our Commercial property leases fact sheet.

It may be that you don’t need business premises to trade. Think about whether you could trade from home to save money on business rent, business rates and utility bills.

Business rates

You may qualify for a reduction on your business rates bill depending on where your business is and what type of business you are. The rules can be complicated and you would need to contact your local council to find out what you are entitled to. See our Business rates fact sheet.

Variable costs

Your variable costs will depend on what type of business you have and how much trade you have done. These may include things such as the cost of buying stock and materials, and travel costs.

Business gas, electricity and phone bills

You may be able to shop around for better deals on these types of bills. Check to see if you are tied into a contract as there could be penalties if you try to leave a contract early. If you are not tied in, you can compare the prices of several suppliers. There are independent price comparison websites that can help you find the best deal. Always check the terms and conditions to see what would work best for your business.

You can also ask other suppliers, such as those supplying you with goods, for better prices. Or you could consider using cheaper suppliers. Ask for recommendations if you are considering changing your supplier.

Other costs

Check to see if you are paying too much for your accountant’s fees. Ask other businesses in the area for recommendations and compare prices to see what would work best for your business.

If you pay for advertising, consider the added business this brings in. If your current way of advertising is not bringing in a lot of business, consider changing the way, and how often, you advertise.

Working out your household budget

If you are a sole trader or a partnership you can use the drawings figure from your business budget as your income (take-home pay). If you are a director of a limited company, your income figure is the wage your company can afford to pay you after tax.

Working out your household income

Add up the income for you and your household. Include the following.

• Your income from your business.
• Wages and salary after deductions (normal take-home pay) of your husband, wife or partner (not your business partner). Only include overtime if this is regular. Check with your local tax office that you have the right tax code.
• Benefits and tax credits, including Child Benefit. If you are on a low income, you may be entitled to benefits that you are not claiming. If you are sick or disabled, you may be able to claim a range of disability benefits. Contact us for advice about finding out if you are eligable.
• Contributions from other people who live in your home, such as grown-up children and elderly relatives (known as non-dependants). Make sure that any non-dependant is paying enough towards the household expenses and don't forget to include any extra housekeeping costs for them.

Working out your household outgoings

Working out your outgoings will help you see how much money you need to spend on basic living expenses. At this stage, don't include any debts, arrears or credit payments.

The easiest way to work out a household budget is to use monthly figures. If you pay for some things weekly or fortnightly, remember that you will need to change these to a monthly amount.

To change weekly figures to monthly figures

Weekly figure x 52 (weeks) divided by 12 (months).

To change fortnightly figures to monthly figures

Fortnightly figure x 26 (payments) divided by 12 (months).

To change four-weekly to monthly figures

Four-weekly figure x 13 (payments) divided by 12 (months).

Your budget should include the following areas.

• Essential spending, which includes household bills and regular payments.
• Phone costs.
• Travel costs.
• Housekeeping which, as well as covering things like food and cleaning materials, also includes clothing.
• Other spending which includes outgoings that are not covered anywhere else in your household budget.

Are my household outgoings reasonable?

Many of your household outgoings will be based on your regular bills or direct debits and standing orders from your bank account. You might not have much control over some of these amounts. It is important that the amounts you put in your household budget are based on your true spending so the budget is accurate.

• Be careful and be realistic

Do not include figures that are less than you are really spending. If your figures are too low, you will find it hard to keep to your budget.

• Be sensible about your spending

If you have debts and your creditors don’t think that your household outgoings are reasonable, they are less likely to agree to reduced payment offers. If you are not sure, contact us for advice.

Money left over after bills and essential spending

Money left over after you have worked out your business and household budget sheet can be used to do the following.

If you have debts

You may not have enough money left over to pay the normal monthly payments on your debts. If this is the case, you need to decide which debt option is best for you.

There is a section on your business and household budget sheet for you to list the debts you have. If you want to negotiate with your creditors yourself, you can work out offers of payment and put these on your budget.

See our website www.businessdebtline.org for details of debt options you might have or contact us for advice.

If you have got enough money left over to pay the normal monthly payments on your debts, you should make these payments in full.

If you want to save

It is a good idea to save some money each month if you can. This helps you plan ahead. It can be hard to stick to repaying any debts you might have or essential bills when an important expense needs paying. This could be that your car needs fixing or you have an urgent house repair. You can spread out these payments and make budgeting much less stressful if you regularly put a bit of money aside to pay for expenses such as these.

Christmas, birthdays and holidays can also put a big strain on your budget. Think about opening a savings account or joining a credit union. If you join a credit union and start saving with them, you will also be able to apply to borrow money once you have proved you are a reliable saver. Check the MoneyHelper website for information about credit unions.

Also see the Saving section later on in this fact sheet.

Taking out more credit

Lots of people take out credit for all sorts of items such as buying new business equipment, a new car or a new sofa. Doing a business and household budget sheet will help you work out how much you might be able to pay on a monthly basis. Think carefully about whether you can afford this and shop around for the best deals.

If you already have debts that you are finding it hard to pay, taking out more credit might mean you struggle to pay your ongoing bills and any other debts you might have. Think carefully before you do this. Your budget will tell you if you have enough money left over to pay the monthly payments.

See Should I take out more credit? later on in this fact sheet.

Managing your money

TV licence

Paying for your TV licence is a priority. This is because you can be fined in the sheriff court for not having a licence. This can lead to enforcement, or even to you going to prison, if you don't pay the fine. As well as having the fine to deal with, you will still need a TV licence.

• You will get 50% off your TV licence if you are registered blind.
• The licence is free if you are age 75 or over and you or your partner gets Pension Credit.
• There are different ways of paying for a TV licence. Work out which one will suit you best.
• You can pay your licence weekly, monthly, every three months or yearly.
• You can use the TV Licensing savings card or make payments at PayPoint outlets in shops. To apply for a TV Licensing savings card, contact 0300 555 0281.
• You can pay by direct debit either every three months or every month from your bank account. See www.tvlicensing.co.uk.
• There is a payment scheme called the 'cash payment plan' which allows you to make payments towards your licence every week or two weeks. You can only use the scheme for colour licences. Contact the cash payment plan helpline on 0300 555 3456 or check the TV Licensing website.

Household gas and electricity bills

It is very important to budget for gas and electricity bills. Your energy company should offer you different payment options and budgeting schemes to suit you. You can ask to pay your bills every week, every two weeks, or every month.

Help with high bills

Home Energy Scotland has lots of useful information on saving energy and cutting costs. They can also check whether you can get discounted energy costs or help with insulation or new boiler costs through the Home Energy Efficiency Programmes for Scotland. Go to www.energysavingtrust.org.uk/scotland or call 0808 808 2282 for more information.

You may be able to get a grant or a loan to help with insulation, draught proofing, central heating and other energy-saving measures through the Affordable Warmth Obligation Check with your supplier.

Getting the best energy deal

You might be able to save some money by switching to another supplier. This may work out cheaper, particularly if you have both gas and electricity from the same supplier. If you owe money, you may not be accepted by a new supplier but you should be allowed to switch if you have a pre-payment meter and owe less than £500. There are a number of independent internet price comparison sites that can help you find the best deal. Contact energyadvice.scot on 0808 196 8660 for a list of authorised companies, or check the list on the Ofgem website www.ofgem.gov.uk.

Help from gas and electricity companies

Some energy companies have set up trust funds that may be able to help you pay your energy bills if you are in financial difficulties. Ask your energy company if they run a scheme or contact us for details. You can also download a guide called Help with Water and Energy Bills from the Auriga Services Ltd website www.aurigaservices.co.uk.

Best deals for your phone calls

Check your phone contract is the best you can find. You may be able to make savings if you switch phone companies. Another way to cut costs is to use an 'override provider'. You won't have to change your phone line but by dialling a prefix number, you could cut the cost of daytime calls and calls to mobiles.

Even if you don't want to change your phone company, there are other ways to cut down on your phone bills.

• Pay by direct debit.
• Use the internet. If you have access to the internet, you may be able to talk for free using software such as Skype, Viber or WhatsApp.
• Check your contract. Are there extras such as voicemail that you don't really need? If you have an expensive 'unlimited anytime' package, do you really need it?
• See if your phone company has a social tariff. This may be helpful if you are on certain benefits and only use your phone occasionally.
• See if you can switch to paperless billing. If you agree to get your bills online, you could save some money. If you use directory enquiries, re-dial on the number they have found for you, instead of asking them to transfer your call.

If you have a bill that you cannot afford to pay and you want to keep the phone line, ask your phone company if you can pay by instalments. Your phone company may be more likely to agree if you set up a monthly payment plan, perhaps by direct debit. They may also agree to let you have only incoming calls for a short time to help reduce your bills. When you have cleared your arrears, you may then be able to go back to your normal phone package.

Best deals for your broadband

There are lots of companies offering broadband so shop around for the best deal. You will usually also have to pay for line rental, and many companies offer digital television packages too. Check to see if you can get a better deal paying for these separately where possible. Make sure any usage cap is suitable for you, to avoid further charges. If your current contract is finishing, don’t be afraid to ask for a better deal. Ofcom recommend a number of price comparison websites, see www.ofcom.org.uk.

If you receive certain benefits, you may be eligible for a social tariff. A social tariff will usually be cheaper than the provider's other tariffs. Most social tariffs are for broadband. However, there are some for landline phones. Ofcom has a list of available social tariffs and the eligibility criteria.

Travel costs

If you use public transport, you may be able to save money by buying a weekly, monthly or annual travel pass. Some employers have schemes to make it easier to pay.

Cycling is free but bicycles can be expensive. Again some employers may use a scheme to help reduce and spread the cost.

Running a car can be very expensive. Make sure your budget allows for costs such as road tax and MOT. It is important to save regularly so you have money to pay for any repairs that are needed. Only use your car when necessary.

Saving

Allow an affordable weekly or monthly amount in your household budget for occasional costs like Christmas, birthdays or car repairs. Also try to put something aside for unexpected costs and emergencies if you can.

You could save in a bank or building society account and be paid interest on your savings. Shop around for the best deal or speak to an independent financial adviser. See www.moneyhelper.org.uk.

If you decide to make a regular savings contribution then it may be a good idea to set up a standing order. A standing order allows a regular payment into your savings account and will allow you to control how much money goes into the account each month. Speak to your bank about setting up a standing order if needed.

See if there is a local credit union you can join. Credit unions are saving schemes run by their members which also allow you to borrow two or three times as much as you have saved at a low interest rate. A credit union will also normally pay out a dividend to you once a year. The amount you get depends on how much you have saved, and how much profit the credit union has made. Contact the Association of British Credit Unions Limited on 0161 832 3694 to find a suitable credit union or see www.abcul.org.

With some types of saving account you may not be able to get your money back out straight away, or may be penalised for taking out money earlier than agreed. Make sure the option you choose is suitable for you. MoneyHelper can give you advice about different ways of saving and tell you how to find independent financial advice. Contact 0800 138 7777 or see www.moneyhelper.org.uk.

Whoever you decide to save through, make sure that they are covered by the Financial Services Compensation Scheme. This scheme is set up to protect customers if their bank, building society or credit union runs into financial difficulty.

Help to Save

The government has introduced a savings scheme aimed at people on low income. The Help to Save scheme can give you a 50p bonus for every £1 you save over a 4 year period.

To be eligible you need to be either:  

• receiving Working Tax Credit;
• have a nil award for Working Tax Credit but are receiving Child Tax Credit; or
• claiming Universal Credit (with your partner if it's a joint claim) and earned at least £793.17 from paid work in your last monthly assessment period.

You also need to be a UK resident with a bank account. However, if you live overseas, you can apply for an account if you or your spouse or partner are a member of the Crown services or British armed forces.    

For more details on how the Help to Save scheme works please see www.moneyhelper.org.uk.

Christmas can stretch the family budget. Some supermarkets and shops have Christmas saving schemes you can join. Some catalogue companies do hampers for Christmas which you can buy over a year. It is important to try and plan ahead and spread the cost.

• Set your festive budget and save on a regular basis throughout the year.
• Budget to keep paying your regular bills.
• Shop around for the best deals.
• Keep track of what you have spent.
• Include your Christmas dinner in your plan as this can be a big expense in itself.
• Have a stress free Christmas!

Should I take out more credit?

Taking out credit is not usually a good option if you are struggling to pay essential bills, or are already in debt. Below are some practical tips to consider before borrowing money.

• Check whether you can afford payment protection insurance to cover you if you fall ill or stop working. Shop around to make sure you get the best deal. Beware, as some insurance agreements have small print excluding you from cover if you are self-employed, or had a particular medical condition before you took out the agreement. If the loan insurance being offered doesn't cover you, you may still be able to get cover elsewhere.

• Make sure you know how much the credit will cost. Most forms of credit are expensive. If you feel the only way to afford something is to spread the cost by taking out a loan, be very careful to shop around for the best deals.

• Check the interest rates on offer and compare different forms of credit to see how much you have to pay in total over the whole borrowing period.

• The interest charges on credit are called the ‘Annual Percentage Rate’ or ‘APR’. This tells you how expensive the loan will be. Generally the APR will be higher than the quoted interest rate and will show the true cost of the credit.

• In some situations more interest can be added if you take longer to repay, so always try and pay things back as quickly as you can. You can check how much you can realistically afford by completing your business and household budget sheet.

Secured debts

Some loan companies will want to secure debts on your home. This means that the loan becomes like another mortgage on your home.

Some banks may only agree to give you a business overdraft if it is secured against your home. Sometimes this may be called an all monies charge. An all monies charge means that all borrowing now, and in the future, from that bank will be secured.

Banks may also ask for security over your business assets. This could mean you don't have the right to sell the assets yourself. If you can't pay the creditor, they may go to court to take these assets to reduce the amount you owe to them. This means you could struggle to keep trading if the assets are essential to your business. If you are not sure if you have security over any business assets, contact us for advice.

Personal guarantees

If you are a partner in a partnership, or a director of a limited company, then you may be asked to give a personal guarantee to a supplier or lender. This means that if the business is unable to pay, they will be able to ask you to pay instead. You will usually be liable to pay back the total amount owed, even if other people have given guarantees too. This is called ‘joint and several liability’.

Credit cards

If you can pay the whole debt within the interest free period allowed on the card, this can be a good option. If you cannot repay the full amount in one go, you will be charged interest on the balance each month. This may be very expensive. Shop around for cheaper deals on credit cards. For help on what you can afford to pay on a credit card see the MoneyHelper website.

Unsecured bank overdrafts

If you think you are going to need an overdraft, make sure you arrange this with your bank or building society in advance. The charges and interest on most unauthorised overdrafts can increase your debt massively. Some banks and building society accounts do not charge for an overdraft if you are within your limit. Shop around for the best accounts.

• Check the balance on your account regularly so you know how much you have spent.
• Try not to ‘live’ in your overdraft. Aim to keep the account in credit when possible.
• Overdrafts are repayable on demand. This means a bank can ask you to pay the whole amount back in one go if they choose to.

Payday loans

A payday loan is a type of cash loan, normally paid into your bank account. They are called 'payday loans' as they are intended to be short term loans, meant to be paid back when you next receive your wages or benefits.

The interest rates are usually very high, so it can be easy for the debt to get out of control if you can’t afford to repay on time. See our [Payday loans fact sheet]().

Instant credit ‘buy now, pay later’

It can be very tempting to take out credit, perhaps for a bargain in a sale, which you don't have to make payments on for many months. Be very careful to build in future payments you will have to make under these type of credit agreements into your household budget. Make sure you will be able to afford them.

If you are offered interest free credit, check that the credit is really interest free. Some agreements say in the small print that interest will be added as soon as a payment is missed.

Doorstep credit or catalogues

The interest on cash loans or catalogue goods can be high but tends to be ‘hidden’ because you may only look at your weekly payment amount rather than the APR being charged. Compare the price you would pay for the same item in shops or online.

Rent to own

This is a type of hire purchase agreement. With rent to own you won’t own the goods until you finish paying. This means you can’t give the goods to someone else, and the lender can sometimes take the goods back if you don’t pay. Interest can be high, but again may be ‘hidden’ if you only look at the weekly payment rather than the APR. Compare the price you would pay for the same item elsewhere. See our Hire purchase debt fact sheet.

Guarantor loans

Some loan companies may ask you to get a friend or relative to be your guarantor. This means that if you miss payments, your guarantor will need to pay instead.

Credit union

If you are a member of a ‘credit union’ you can usually borrow up to two or three times the amount you have in savings, depending upon the loan policy of your credit union. If you miss payments on the loan then the credit union may be able to use your savings to pay the debt. See Saving earlier on in this fact sheet.

LETS schemes

‘Local Exchange Trading Schemes’ (LETS) are a ‘money free’ way of bartering goods and services. You can ‘buy’ goods using tokens and ‘earn’ tokens by providing a service back, for example baby-sitting or window cleaning. Check in your library for details of any local scheme or check the LETSlink UK website www.letslinkuk.net.

Loan sharks

Be very careful of making agreements with lenders who could be ‘loan sharks’. Lenders must be authorised by the Financial Conduct Authority (FCA) or they are lending money illegally. You can check whether a lender is authorised on the Financial Services Registeron the FCA's website www.fca.org.uk.

What should I do if it all goes wrong?

If you find that you are falling behind with your bills and worried about how to pay your credit debts, contact us for advice or visit [businessdebtline.org]().

Some golden rules

• Don’t ignore the problem; it won’t go away and the longer you leave it, the worse it will get.
• Don’t borrow money to pay off your debts without thinking carefully. Get advice first.
• Use our information pack to help you work out your budget. This will help you decide the best way to deal with your debts.
• Make sure you tackle your priority debts first, for example, debts which could mean losing your business or your home or having your gas or electricity cut off.
• If you decide that making reduced offers of payment to your creditors is the way to deal with your non-priority debts, use your business and household budget sheet. Contact everyone you owe money to and make arrangements to pay a reduced amount that you can afford.

Other fact sheets that may help

Business rates fact sheet

Commercial property leases fact sheet

Hire purchase debt fact sheet

Tax allowances and amounts fact sheet