Most of us know what it’s like to struggle to pay the bills, or to wonder if you’ll have enough money to last until the next paycheck. Sticking to a good budget can mean the difference between having money at the end of your month, and having month at the end of your money.
Of course the main idea behind creating a household budget is to make sure that the money you spend is less than the money you earn. So, in theory, all you need to do to create a budget is to write down all of your sources of income and your expenditures, and then make sure that the expenses are less than the income.
Step 1 to creating your household budget – list all sources of income
For most households, listing your income is a relatively easy step! Don’t forget to list such things as income tax refunds and any other lump sums you may receive throughout the year if you are expecting any. If you get a tax refund every year, it may be a good idea to put it into your bank account and divide it up into 12 equal amounts to withdraw monthly. This can make the difference between meeting or exceeding your monthly budget!
Creating your budget step 2 – list all of your expenses
Listing all of the things you spend money on can be considerably more difficult than listing your income! To list your expenses, start with the regular ones, such as rent/mortgage payments, utilities, car payments and gas. If the expenses fluctuate, then estimate your average monthly amount. It’s best to estimate a little high.
The most difficult part about calculating your total expenses is adding in all of the little things that you buy every day/week, such as coffee, eating out, quick trips to the grocery store, and other small payments. One of the best things that you can do for your financial situation is to save each and every receipt for every single thing you buy for at least a month. Then sort them into categories such as groceries, gas, school supplies, eating out, treats and see how much money you are spending on these incidentals. You will likely be very surprised.
Once you have added this all up, decide on an amount that you actually WANT to spend on things such as eating out, groceries and treats, and then put that in your budget. Keep that amount in cash in your wallet (in separate envelopes if need be), and spend only that amount. You’ll be amazed at how much you can save!
Household budget step 3 – trim expenses and plan for savings
Keeping expenses less than income is the main concept in creating a budget that allows you to have sufficient for your needs every month. But another important thing to consider in creating your budget is savings. You need to save for emergencies, save for the future (retirement), and save for major purchases such as vehicles, vacations, furniture, etc. Make sure you include savings as a part of your expenses side of your budget. The amount that you start saving is much less important than the fact that you are actually putting aside something every month. Even if you start with 2% and work up from there, just start somewhere! Making sure that you are putting aside savings every month is not only good for your future, it’s good for you right now. It helps you to be more disciplined with your money, and that’s always a good thing. Take the savings out (or have it automatically deducted) first, as soon as you get paid, and you won’t even miss it!
If you are like many others and find that you need to trim your expenses in order to balance the budget, then it is time to think about wants vs. needs. It doesn’t matter if you think something is a need – if the money is not there for it, then you must find a way to reduce your expenses. Carefully consider the things you can actually live without. Usually, doing without feels much better in the end than overspending and not having enough for the things you really and truly need!
This basic plan for creating a household budget will have you living within your means, and feeling really good about your current financial state as well as your financial future! And for a little extra help, we have some great ideas to help you trim the “Expenditures” side of your budget in a big way. Click here for 10 tips that are guaranteed to help you save money. We also have some ways to earn extra money if you are having trouble staying within your budget coming soon. Stay tuned!