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Managing my money for young adults
Managing my money for young adults

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7 Debts and repayments – build them into your budget

This image depicts the connection between liabilities and expenditure.
Figure 5

Let’s complete our coverage of borrowing by looking at how to incorporate its financial consequences into your budget. In doing this please bear in mind that borrowing money is a normal aspect of adult life. Virtually everyone borrows money at some stage in their life and the vast majority are able to pay off these debts without problems.

The key change to your budget is that the expenditure side must now have a line added for debt repayments. This is in addition to any section that you have for the repayment of student loans, since these loans are different from conventional debts. With student loans you only make repayments if your income is above the threshold for making them. For conventional loans you’re committed to making repayments – typically monthly – regardless of your income level.

If you have a series of loans – say credit card borrowings, a bank loan and a mortgage – it makes sense to have a line in the expenditure side of your budget for each one. This enables your position with each debt to be more clearly visible to you.

Aside from adjusting your budget you should keep a record of each loan to see how much is left to be paid off and over what future time span. Your lender should provide you with an annual statement to help you with this.