How to Create a Household Budget
In 2013, only 32% of Americans kept a household budget (that’s only ⅓!). Creating a budget is a simple, effective and proven way to ensuring managing your finances can be done with greater ease and success. A budget can allow you to:
- Reduce unnecessary spending
- Ensure you have the funds needed to pay bills and meet your other financial commitments
- Streamline your household spending in order to maximize your monthly savings
- Figure in which ways and places you might be overspending
While the steps needed to create a household budget are quite simple, care must be taken to ensure accuracy when estimating or recording your monthly income and expenses. Even the most common errors and oversights could lead to serious problems with your finances.
Step One: Set Your Goals
Making a list of all your short and long term financial goals is a step that is often overlooked when creating a monthly budget. Whether you are living paycheck to paycheck, seeking to pay off outstanding debts or interested in optimizing your long-term savings, outlining your goals ensures that you are able to create a budget that will allow you to achieve them.
Step Two: Track and Record Daily and Monthly Spending
While a rough estimate of your costs and expenses may allow you to create an initial budget, more detailed information can make a real difference. Tracking and recording all spending and expenses for a month provides you with the insight needed to create a more accurate budget. Recording your spending and documenting your financial activity may prove to be a useful habit when it comes to reducing spending.
Step Three: Plan Your Future Expenses
A detailed and accurate estimation of your future spending is essential for creating an effective budget. Overlooking a single account or failing to plan for unexpected expenses can quickly knock even the most carefully created budgets out of balance. Budgeting a little more than you expect to spend in each category can ensure that any errors or inaccuracies are less likely to place strain on your finances.
Step Four: Maintaining and Adjusting Your Budget
An outdated budget may prove to be little more than a liability in your efforts to track and manage your finances. Issues and problems may quickly arise should you fail to adjust an existing budget to reflect any of the following:
- Raises and new sources of income
- New accounts and expenses
- Seasonal changes with utility bill payments
- New spending habits
Checking up on your budget or performing a quick audit of your finances from time to time is not a step that should go overlooked. Failing to adjust a budget in response to changes in your cash-flow and spending habits could limit the effectiveness of your budget.