Budgeting often sounds scary at first. However, when broken up into small bite-size pieces, it becomes significantly less intimidating and surprisingly doable. Here are 5 small, step-by-step tips to help you create your household budget and stick to it:
1. Ditch the Plastic
Credit is the ultimate enemy of any household budget. The luring temptation to buy now and pay later can see you trapped in a long-term cycle of debt. As the interest charges pile up, your disposable income is gradually eroded, leaving less for your monthly expenses and making budgeting impossible. Your first mission is to clear as much of your debt as possible. If you’re already stuck in the credit trap, this can be easier said than done. However, before reaching for the plastic again, shop around for small fast loans with low interest from community-based or not-for-profit lenders. These can ease the short-term pressure by providing you with much-needed liquidity, without the crippling charges.
2. Calculate Your Expenses
Now that you’re ready to begin creating your budget, the first step is calculating your monthly expenses. Start by dividing all your outgoings into categories. For instance, groceries, toiletries, cleaning help, utility bills, and others might go under “household expenses”. Car repayments and insurance, gas, tolls, etc., can fall under “vehicle expenses”, and so on. Breaking everything down in this way will help you identify the areas in which possible cuts can be made. This will prove helpful for steps 4 and 5.
3. Calculate Your Income
The next step is calculating your monthly income. Make sure to include your partner’s income, if you have one, as well as any additional streams, such as rent from a boarder, gifts from parents, government benefits, or others. Add all of these sources of income into the equation. It’s crucial to ensure that you’ve accounted for taxes if your employer is not withholding. The last thing you want is getting hit with taxes you can’t pay when tax season arrives. Avoid this by estimating how much tax you will need to pay on your income and putting that money into a separate bank account each month. When calculating your monthly income for your budget, only count the remaining money.
4. Set Your Monthly Budget
Now that you have a good idea of the sum of your expenses and income, you can now determine whether or not they add up. If your estimated monthly income is greater than your estimated monthly expenditure, that’s great and you’re ready to think about saving. However, if your estimated expenses are higher than your income, it’s time to reevaluate. Which of your spending categories is eating up more of your income than it deserves? Is there a way to consolidate some of your costs? Perhaps one or two small lifestyle changes will be the key?
5. Track Yourself
It’s now time to put your budget-on-paper to the test. At the end of the first month, look back through your expenses. Did you make as much money as you planned? Did you spend more, less, or the same amount as you intended? Did any of your spending categories swallow considerably more, or less than you estimated? Use the answers to these questions to tweak your budget for the coming month, and continue doing so each month until you get it right.
Budgeting isn’t as hard as it seems. The secret is identifying the steps you need to take, and ensuring to follow each of them through. Approach budgeting with confidence, consistency, and optimism and you’ll be on your way to financial stability.