Do you ever feel like the money you earn is just passing through on its way to someone else? A lot of us do. All too often we spend money as quickly as we get it. Some of that money goes toward necessities such as food and shelter, but a goodly portion of it often goes toward unnecessary items. Whether you can’t seem to save up any money for a rainy day or you’re having trouble getting the bills paid, a household budget can help. Even if you don’t seem to have any money problems, a budget can be of use. Carefully monitoring your spending allows you to save money for retirement, your kids’ education, and any other goals you may have. Setting up a budget is not as difficult as it sounds. All you have to do is list and prioritize. It may not be the world’s most exciting activity, but it’s quick and painless.
The first thing to do when creating a budget is to make a list of all of your monthly income. This includes your pay from work, any self-employment income, and interest and dividends from investments. Some months you may have extra income such as bonuses or tax refunds. And if your work hours vary, your pay will fluctuate. So it’s important to figure the amount you have coming in each month.
Once you’ve listed and totaled your income, it’s time to list your expenses. Start with the necessities that are the same each month, such as rent or mortgage, car payments, insurance and loan and credit card payments. Then figure variable expenses such as electricity, groceries and gasoline. You might want to compute an average over several months to use for these figures, use the highest figure you have on record, or estimate.
Last on the list should be discretionary expenses. These are things you can live without such as entertainment, hobbies and collectibles. Use a realistic figure for these items so you can see where you stand.
Add up all of your monthly expenses. Are they more or less than your total monthly income? If they’re less, you’re off to a good start. If they’re more, you have some work to do. Look at your discretionary expenses and see where you can cut back. If you cut them out completely and still come out in the red, see if you can find ways to cut back on your variable necessity expenses. Some ideas include driving less and using coupons.
Once you have your expenses at a manageable level, you should have some extra money left over. If you have loans or credit card balances, consider using that money to pay a little extra on them. Doing so will reduce the amount of interest you pay and get you out of debt faster. Otherwise, the best course of action is to put it into savings or investments. This will help you be prepared if something unexpected happens.
A household budget plan will help you track your expenses and determine where adjustments need to be made. It can put an end to juggling bills and ease financial stress. If you don’t have a budget, now is as good of a time as any to make one.
