Generally, people have a steady amount of income daily, weekly or monthly. It is what you do with this income that differentiates living comfortably or insolvency. Having a budget makes you consider your finances seriously so you can avoid living hand to mouth or be stressed out when unexpected expenses pop up. With this in mind a financial budget plan is essential in every household.
- Keep track of your spending habits. If you want to start on a household budget, observe and write down your normal expenses on any given month. This means keeping receipts from all purchases such as groceries, gasoline, haircuts, or even the occasional ice cream binge. It will be necessary if each member of the household creates a spending journal for each month. Collate all your expenses and list them down.
- Create a comprehensive list of expenses. Fixed expenses are the expenses that you need to pay regularly on a monthly basis such as utilities, rent or mortgage, insurance or any expense that needs to be paid monthly with a fixed amount. Variable expenses are the expenses you need to live decently such as groceries, clothing, transportation etc. And miscellaneous expenses are those that do not fall in fixed and variable categories.
- Compare income with expenses. List all income sources from the members of the household. Categorize your expenses to fixed, variables and miscellaneous. You can further put a category for debts or loans. This includes your credit card bills. When you have done this, subtract the total income and your total expenses. Check if the expenses are greater than the income or vise versa. If you spend more than your total income, then check your expenses and analyze what adjustments can be made to make the figures balance out.
- Set a budget. When you have gathered all the data and analyzed your normal spending habits for one month. Allocate a budget per expense category you have in your list. Put a ban on purchases that you or a family member that is outside of the bare necessities. Take note of expensive purchases and think about cheaper alternatives. Work around your budget and scratch out purchases that are non-essentials.
- Set a working monthly budget. If most of the expenses are not fixed, having a working monthly budget will help you estimate your expenses more accurately. Make sure that you do this ahead of time most especially when, special occasions fall on a certain month. You have to include the celebration expenses in your working budget.
- Set your spending goals. When you have analyzed your spending habits, have a separate list of your short-term and long term spending goals. Set this as another category in your budget plan. Short term spending goals are expenses that you are saving up to spend for the near future such as holiday gifts, the next summer vacation, a new TV, or an upcoming education expense. The long term spending goal may include buying your first or second home, saving up for a child’s education, planning for retirement or paying down your debt.
- Review and edit. After you have made your budget plan, review it on a monthly or quarterly basis. Adjust your expenses or savings accordingly.
Initially, creating a finance budget plan for your household and sticking to it may be difficult but in the long run, you will reap the rewards. When you know where your money goes then it will be easier for you take much more care of your money.