Why Develop a Household Budget?
Most people don't have a budget beyond deciding what bills will be paid from each paycheck. Because bills are usually on monthly cycles, moreover, those who are paid weekly or bi-weekly must be careful to hold back enough from each check for those monthly obligations. This can be a bit complicated, especially if you tend to be an impulse buyer. In earlier times, people used an envelope system, putting cash from each paycheck into envelopes, each marked with a creditor, so that the money was available when the bill was due. It was a good system then, but not too practical today with creditors all over the country.
Creating a budget is a must for anyone who wants to maintain good credit and plan for the future. You cannot create a budget, however, until you first know where your money is going.
How To Begin a Budget
The first step is to spend one month writing down every expenditure, from your mortgage or rent payment to the latte you purchase on the way to work - EVERYTHING - without fail. This is the only way that you will be able to see where your money goes. You will probably have to carry a notebook in your car and leave one at home in order to do this, but do it you must! NO CHEATING!!!
Categorize expenses into categories
Categorize all expenses into categories. You may need to elaborate on these, but the following is a pretty comprehensive list:
- Required bills: mortgage or rent, electric, gas, phone, cable or dish, charge accounts, car payments, monthly insurance payments, and any installment loans
- Non-monthly required bills: usually, this includes water, trash, insurance, etc. - any bill that is paid every two or more months
- Household Expenses: groceries, gas, toiletries, clothing,etc.
- Entertainment: movies, lunches or dinners out, skating, bowling, etc. - anything you do which is not a required expense but brings pleasure
- Medical: If you have monthly prescriptions or doctor visits, these should be noted here.
- Miscellaneous: All other expenditures, including emergencies
Look At Your Income and Compare
Total your monthly income. Subtract the total from all categories of expenses and see where you are. Do you have money left over? Are you charging things and therefore in deficit spending(spending more than you take in)?
Set Goals For Yourself
Set your financial goals:
- If you are spending more than you are taking in, your immediate goal is to stop this and to spend no more than you take in.
- If you want to begin to save money, then you have to decide what expenses you are going to eliminate in order to save.
Establish Your Budget
There are categories in which you have flexibility. Obviously, these categories are miscellaneous, entertainment, and household areas. If you have been honest with your monthly listing, you can immediately begin to check off items that you can do without or reduce. Examples of this are as follows:
- Reduce your grocery budget by buying only what is on sale and planning your meals accordingly. Coupons are good to use, but this takes a lot of consistency and some work. If you don't have the time for coupon-clipping, decide to reduce the cost in other ways. Buy generic brands, shop at stores where you bag your own groceries, buy in bulk. Limit trips to the grocery store - everytime you go, you will buy more than what you went for.
- Reduce entertainment expenses if this is hurting your budget or your savings plan. Rent movies instead of indulging your need to see them as soon as they reach the box office. Bowl or skate twice a month instead of four times a month. Plan no-cost entertainment outings.
- Take your lunch. It is amazing how much you will save each month.
- Plan errands and outings so that you use the least amount of gas.
You are now ready to set up your budget. Get a piece of poster board and make columns for each of your categories. Place an amount under each category for the proposed monthly expenditure. Be certain to have a category for "Savings."
When you have an expense in a category, write it in the column. In the flexible columns, when you have spent all that you have budgeted, STOP SPENDING. No More. You are stuck until next month. If you have an emergency expense, take money out of one of the flexible columns if it is available. If not, you will have to place it on a credit card and increase the amount in the "required" column to account for paying it off.
Make It A Game
It is much easier to establish a budget and stick to it if you make it a game in your mind. The challenge is this: How little can you really spend each month and how much can you save?
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