One of the key elements of good money management is getting control, and one of the ways of getting control is to make a budget and stick to it. If you don't know how to budget your finances, or need some guidance then read on.
A budget is generally a planned list of all sources of income and all statements of expenses. In its simplest form a budget is no more than subtracting what you spend from what you earn.
By creating a budget and learning how to budget your finances, you will start to take a serious and truthful look at your past decision making, your families current spending habits, and how you can go forward in the future
To help you I have a free eBook which explains in more detail the basics of budgeting and includes lots of explanations, suggestions and guidelines as well as some worksheets which you can use for your own family budgeting.
If you make a concerted effort while going through the book, you will be amazed how much of a difference it will make. It’s common for families to go through this process and realize they can save $5000 to $10,000 a year, just by managing their money better. And usually the whole process can be done in a day and managed monthly in an hour.
What you have to be though is truthful to yourself, and be prepared to start making some tough decisions in order to get control and if necessary change your spending habits
You can download the book for free by joining our newsletter, but just to give you a flavor here is a step by step guide to producing your first family budget
Step 1: Write Down What Comes In
When you start tracking how much you earn with respect to your budget, look at what you bring into your household after tax. That will keep things simple.
Include all sources of income which contribute to the household budget - both partner's incomes, any second earnings, lodgers, benefits or any other payments
Try and use a monthly cycle if you can. At the end of this step you should have a pretty good idea of what comes into the household on a month by month basis
Step 2: Write Down The Essential Expenses That Go Out
Start of with the stuff which you are obligated to pay month on month and write them down.
For the moment write down what you pay now (we'll look at how to reduce them separately)
There are 2 basic types of essential expenses. Fixed Expenses and Variable Expenses.
- Fixed expenses are the regular monthly (quarterly/annually) expenses that you pay and the payment remains the same.
- Variable expenses are the regular payments that due each month (quarterly/ annually) but the amount due varies. The electric and gas bills may fall under this category and it is often helpful to take out a payment scheme which spreads the cost into equal chunks over the year
Write all these down in a second column and add them up
Step 3: Account For Non – Essentials and Hidden Expenses
After you have taken care of all of the previously mentioned expenses, what is left is referred to as your discretionary income. This is stuff which is not essential but you need to control, and is often the most difficult to identify
The best way of doing this is to write down everything you and your family spend over a period of at least a month ... you can then go through and work out what is important and what can be reduced or got rid off
It’s also important to pay close attention to the hidden expenses within your spending. These little purchases are usually the difference between a people having some money in the bank and being in debt. Be very disciplined amount writing everything down - you will be amazed at how the little things add up
Step 4 - Create an Initial Budget
Now that you have completed listing all sources of income and expenses over at least the first month, you will have a much better idea of what your financial situation looks like.
The next step is going to be putting all these numbers into a budget based on your current situation.
Basically add up your incomings, add up all your outgoings and the difference is what you have to deal with...
The idea of budgeting is to set a fixed amount each month for each line in the budget and to then track against that line
So if you can afford $500 for your monthly grocery shopping, that is what your budget should be and your task will be to stick to $500 every month
Step 5 - Keep Tracking Month On Month
So now you have created an initial budget all you need to do month on month(!) is to keep track of your spend against the relevant line in the budget and adjust as appropriate.
Of course where you are overspending you will need to make adjustments and once you have got control there are three ways you can make adjustment:
- Earn more
- Spend less
- Do both!
Good luck with your family budgeting... I hope this article and eBook will help you learn how to budget your finances, get them under control, and encourage you to take actions to keep your finances under control
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