If you are looking to go into business and buy a franchise, one of the main things you will think of first is how to fund the new project. Many banks look positively on franchising as an option so there are many lenders to choose from. However, working out if you can afford the repayments is key, not only for you, but also for the lender. This is where a Household Budget can be really handy. The budget will show you what you can realistically afford, it is also a great way to show the lenders in your Business Plan.
Unless you were taught at a young age, or a natural on all thing’s numbers, you might not necessarily know how best to keep track of your finances. A household budget is a plan that allocates all of your household income against where you spend your money each month. You must account for every penny, even that coffee you grabbed whilst out shopping! Rent/Mortgage, food, and utilities are the main ones you think of, however these are only a few of what needs to be recorded. In short it needs to account for all the money you live off and spend.
So, how do you create a template or even start to work out your household budget?
This article will give you a good idea on how to create a household budget and act as a guide as to where to start. As you need to include all your outgoings it can be quite a task to remember where every penny is going.
What should you include?
The simple answer is everything your household spends in a month. You will be able to group certain types of spending in one category, for example your Netflix, Sky Tv, and Hello Fresh subscriptions can all go under Subscriptions. When it comes to certain spending categories that may vary month on month, for example food or clothes, a realistic average should be given. Here is an example of a few things to consider
- Mortgage
- Utilities
- Food
- Clothing
- Eating out (including the odd Costa treat)
- Car fees (HP/Leases, tax, insurance, maintenance etc)
- Petrol
- Savings
- Loans/Credit Cards
- Subscriptions (Sky tv, Netflix, Amazon prime, Hello Fresh)
How do I find out the information I need?
The easiest way to find the information for the household budget is to look through your bank and credit card statements for all the accounts you hold. Go through each transaction and allocate it to the correct category. If done correctly this should account for every pound that you spend. Going over a few month’s worth of statements can also help get a realistic average on the categories that may vary month on month.
Why is this so important?
Going back to the start of the article, a household budget is a great way to show a lender that you can afford the repayments. It will also show how much you can realistically afford whilst still being able to meet your other obligations. This is also a handy exercise to get a good grasp on your finances to help make sure they are in good shape before you take the leap into business ownership. This can highlight any areas that could be changed in order to save a bit more, which can help with your reserves in case you need something to fall back on.
