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Creating a household budget in 5 steps

Creating a household budget in 5 steps

 

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It is the end of the month. You probably have many bills due: mortgage, electricity, phone, credit card, children tuition, health insurance, etc. There are 2 options, pay as much as you can and survive; or create a budget plan and manage your finances wisely. Even though the second one sounds limiting and sometimes annoying, it is the best way to guarantee you and your family a successful and stress-free life. 

 

It is okay to feel a bit lost at the beginning, especially when it comes to budget money for a family. No one is born with money management skills. But it is possible to start by yourself, now more than ever. We bring you here 7 steps to create your own household budget, according to your finances and needs. 

 

Step 1: Identify the amount of your net income

 

The first step in creating a budget is to identify the amount of money you have coming in. To do so, it is important to subtract some deductions such as taxes, retirement plan, deductions, insurances and others. By doing this, you are making sure that the final amount you get is actually what you have available for your household budget. 

 

In addition to that, your net income also includes wages, self-employment income, pensions, spousal support and other types of income you may receive. Make a list of all of them and get started.

 

Step 2: Identify your monthly expenses

 

Once you know what your net income is, it is time to identify your expenses. Here, there are two types: fixed and variable. Fixed expenses are the ones that cost the same amount every month, such as mortgages, car payments, loans, rent, etc. 

 

On the other hand, variable expenses are the ones that are not set with the same amount every month, such as food, clothes, entertainment, etc. Sometimes we tend to perceive variable expenses as discretionary but they represent - most of the time - necessities. However, these costs can be easily reduced because they can adjust to different budgets. The market offers many options to lower the costs of variable expenses. For example, it is easier to lower your spending in food - by cooking more and eating outside less -, than lower your mortgage payment.

 

Make a list with all these expenses. Try to be reasonable and cut off what you think can be put on the side - especially if you expect that your income will not be enough to cover it all.

 

Step 3: Plan your budget

 

Now that you have all amounts clear and ready to be organized, it is the moment to do it. Take the totals you figured out before and organize them according to categories. To do this, gather your expenses and organize them in categories depending on your and your family's lifestyle. This is different for everyone so it takes to make an introspective evaluation of your needs and wants. 

 

To make it measurable and trackable, we recommend you to add everything to an electronic spreadsheet, budget software or ledger. This is where the budget begins to take shape. Here, you may also include your goals with the budget. 

 

Every month, you will have to fill out the information and track how it went. After some months, you will be able to see if you were sticking to the budget or if you got lost during the process.

 

Step 4: Manage your seasonal and extra spendings

 

Just as you did with your budget, now it is time to organize your seasonal and extra spendings. Limiting your money only to what is necessary can feel overwhelming and annoying. We always need some flexibility and freedom so it is important to put some income towards the things you like doing or would like to get. You can do it in a part of your spreadsheet under the name of Seasonal Expense Worksheet.

 

Set up a binder with one page for each seasonal expense item listed on your Budget Worksheet. It should include the items you are trying to achieve in the medium or long term future, for example, a trip or a new car. 

 

The money to cover the expenses of this part of your budget should be from your savings. This way, you are not really using your net income directly but using your savings instead.

 

Step 5: Adjust and keep checking in

 

As we said before, after some months, you will be able to identify if your budget is working out or you need to adjust it. So, if you go over budget, doing this will help you figure out where you spent more money. In the future, you can take greater care not to overspend in that area. The idea is to keep your budget balanced. 

Published by Kreditiweb

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