Are you getting into the habit of overspending every time? Are you wondering where is all your money going? Do you think it is high time you should make a budget but do not know where to start and how to go about it?
Don’t worry; we’ve got you covered. In this article, you will find the tips and steps that will help you build clarity as to how you can go about preparing your household budget.
Tips To Prepare Your Household Budget
Here are some tips you can follow to plan the budget for your household
- Calculate your income – Calculate the total amount you are regularly making. This includes the monthly take-home salary and any other side businesses or gigs you are doing. Note the word leg “regularly”, which means we want you to keep a tab of the sure shot amount you make every month and not an extra or variable income here whose digits may look different in one month from another.
- List out your expenses – when you are listing out your expenses, make sure you list out all the expenditures as you would normally spend. Some of us have the habit of overspending. Do not be critical about your spending and note down your expenses as per the amount spent in various categories, such as house rent, unit of any debt, insurance, phone and internet bills, electricity and gas bills, groceries, dining, transportation, household goods, child care, travel expenses, subscription and memberships, and miscellaneous.
- Note your fixed and variable expenses – Some expenses are fixed, such as your house rent. Pay those off first. Make sure you do not delay the payment of any debt and pay off more than the minimum balance at each regular interval.
Variable expenses are ones in which you can make adjustments. For example, eating out, spending and hobbies and entertainment. Whichever of these needs classify as “wants” and not “needs”, make the necessary adjustments as and where you can. For instance, consuming less electricity, reducing your cable or phone bill, canceling your gym membership or any other substitution you can do without, reducing the number of vacations in a year, and so on. Automate the payment of your phone and utility bills. This will help you ease your finance management while ensuring that the payment of the necessary categories has been made.
- Set up realistic goals = You are earning money to achieve some goals. Categorize the short-term goals and long-term goals that you want to achieve. For instance, say you want to clear a debt in three years. This will be your short-term goal. A longer-term goal will be saving up for retirement or your child’s education.
- Set up the plan = Now consider your income, needs, wants, goals and expenses. Put everything together. You can consider the 50/30/20 rule to set up your plan. As per this plan, 50% of your income goes into the expenditure on needs, 30% goes into wants, and 20% goes towards savings. This plan will keep you from overspending and help you take a step toward your goal.
- Review your budget = Once you have prepared your household budget, review it regularly and stick to it. Make adjustments if and wherever necessary.
Building a budget for your household and sticking to it might be overwhelming if you have never made a budget before. Try with something smaller. Say, start with budgeting for a trip or take $1000 and bifurcate the amount into how you want to go about with the spending. Once you get the hang of it, following the steps mentioned above, reviewing and readjusting the plan as necessary will not look as difficult to you.
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