How to Make a Household Budget
If you want to reduce your financial stress and overall net worth then it pays to figure out your finances with a household budget. The concept for a household budget is to work out how much money you have in comings versus what is being spent and how you are spending it. Now you are armed with all the information it’s time to make some changes to achieve your goals.
Here are the basic steps to creating a household budget.
1: Calculate Your Incomings: This should be fairly easy. You need to calculate your average incomings per month from all sources pay checks (after tax), bonuses and dividends from any investments. If there are some payments you only get once or twice a year such as bonuses then average that figure out over a year to give you a typical month.
2: Calculate Your Outgoings: Calculating your outgoings is a little bit more complicated as you spend money in far more ways than you earn it. Go over your statements for your bank account and credit cards for the past few months and figure out how much you have in outgoings each month and where it is going. Credit card and debit card transactions may be easier to keep tabs on but it’s hard to see where cash withdrawn from ATM’s has ended up. A simple method to track your cash spending is using creating a spending diary in a notepad and noting everything you spend money on each day such as coffee and bus tickets and anything else you spend. Hopefully you will find your typical outgoings are lower than your incomings but often this is not the case. If you find your outgoings are higher than your incomings then you are pushing yourself into debt each month and need to take action to reverse this trend.
3. Classify Your Outgoings: Once you have worked out all your outgoings it makes sense to classify them together into categories such as groceries, utilities, clothes, entertainment, loan repayments, travel and so on. By grouping your expenses you’ll quickly see the areas that are sucking up most of your money.
4: Sort out the essentials, the nice to haves and the not required: Now you can see where your money is going then you need to decide what can be changed. There may be some expenses on there that you feel cannot be changed such as rent or mortgage payments, insurances and so on. If you need to make large cutbacks then perhaps even these items could be reduced by downsizing your home. If you don’t want or need to go to such lengths as moving home then you need to seek other areas for cutbacks. You might be able to save money by switching utility providers, optimizing your cell phone plan and using VOIP to make your long distance calls at a low rate. Common areas for cutbacks are reducing your entertainment and shopping expenses for items such as dining out, buying music, clothes and so on.
5: Make Goals: You should now have figured out what you are spending and where you can make cut backs. You shouldn’t be aiming to create a budget just to survice on; you should be looking to have spare money to increase your net worth each month. Two ways in which this could be done is by reducing debts or increasing your savings. If you are in debt then the goal should be to get out of debt as soon as possible. Aim to pay off as much as you can each month and set a minimum goal which should form part of your budget rather than being an afterthought. Once you have paid off debts then the focus can become on saving money each month via a high interest savings account. High interest savings account products have high interest rates and accumulate quickly when you make regular monthly deposits. Your goal shoudl eb to improve your financial situation every month and prioritize debt reduction, savings and investments to reach your goals faster. There are many other options for additional money in your budget such as investments in property and so on.
6: Keep Yourself in Check: Make sure you keep reviewing your budget and looking for areas where you can make further trimmings and savings. A budget is not a survival plan, it should help form your long term financial roadmap to keep your debts down and investments on the up.
Article provided thanks to www.compareyourbank.com.au which compares bank products and savings products including online savings accounts. Visitors can then apply online for any featured products direct with the banks.
Tags: budget, budgetting, credit card, debit cards, high interest savings account, household budget, money, saving money, savings account
