Budgeting is not just for accountants

In recent months this column has commented upon rising interest rates and the increasing costs of daily life and how they might influence investments. As important as this is, there are many people - even readers of European Voice - who will be more worried about cash flow and the squeezing of their monthly budget.

Although this paper’s readers will generally be better paid than the EU average, even well-heeled, international civil servants can be in something of a bind if their finances are not working. Unlike the rest of the population, the rules of their employment and heavy travel schedule make it almost impossible to take a second job to boost their income. Many will also have a ‘trailing spouse’ which can make them a one-income family - a rarity in many European cities.

It may not help that the major Belgian mortgage lenders are happy to lend far more to EU officials than mere mortals. The stability of their employment, the expectation of future pay increases, their benefits and above-average net incomes make them very low-risk borrowers. This can have the effect of making monthly mortgage pay-ments much higher than would be recommended for a given salary. In turn, disposable monthly income is lower and any change in prices has a greater impact.

These people, suffering in silence for fear of their employers finding out, will be wondering what they can do to ease the financial burden.

The first place to start should always be with budgeting. Understanding one’s own monthly income and spending patterns will often open up ways to spend less. As blindingly obvious as this may sound, precious few people have tried to budget within the last 12 months. In part, this explains the high personal borrowing rates that have been much talked about in recent months.

To assist with budgeting and identify where savings might be possible, it is advisable to keep a written record of all income and expenditure in the course of a calendar month. Keeping a record of monthly income should be easy - the effort comes in keeping an accurate note of everyday spending. The only way to do this reliably is to carry a pen and paper everywhere and note down spending as it happens.

I have helped clients who were horrified to see that their life in London involved spending around €250 each month just in Starbucks. The Brussels ex-pat equivalent will almost certainly involve many restaurant visits each month. An individual could easily spend several hundred euros a month this way and it would be entirely normal. If finances are tight, this is the sort of spending which should be addressed.

Such a discipline will also force a hard look at the direct debits and regular payments which leave the bank account each month. Once automated, such payments are easy to forget or overlook. There may be payments which were started for a few months and remain long after initially intended, or are for services which are no longer required. These are the savings that can be made relatively painlessly.

It might also be worth reassessing personal priorities. I have met clients who were saving heavily into pensions or savings plans each month, knowing that it was good to do so. However, their poor budgeting meant that they were saving money by going into debt elsewhere each month to pay for it.

Of course, budgeting is not just an exercise for those with tight monthly finances. Virtually everyone can learn and benefit from the process. Having put many clients through this exercise, I can vouch for the value in the experience. The process almost always provides both mental and financial benefits.

• Stuart Langridge holds UK qualifications in personal finance. www.thestuartlangridgeletter.com

In recent months this column has commented upon rising interest rates and the increasing costs of daily life and how they might influence investments. As important as this is, there are many people - even readers of European Voice - who will be more worried about cash flow and the squeezing of their monthly budget.

• Primary Source