I think we all agree creating a household budget is important but where do you start? It doesn’t have to be intimidating and today we’re gonna go over a few tips to help make your household budget easier and help it make sense. Welcome to Money and Health with Chris. Rest assured, creating a budget won’t be a painful and going to the dentist, in fact we will make it easy as cake! Just…don’t tell your dentist about the cake…that would be bad…Lol. Okay…enough cheesy jokes…let’s begin!
We all have bills to pay, rent, mortgage, buy food, other too many other financial obligations to name. Plus, we still want those things that make us happy, take the vacations, buy the home, start a family, get the dream car, start the business, or just have a enough for the occasion dinner with friend or fancy coffee on the weekends. It’s smart and necessary to know exactly where your money is going. Budgeting isn’t about saying “no” to the things you want. It’s about saying “yes” to the things that matter most to you. This is why budgeting is so important and a key component to your financial roadmap.
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First things first. You must know how much money you have to work with for starters. How much money is coming into your household every month? Calculate your net income, if you have multiple jobs, rental income, investments, freelance, contract work or side hustles that hit you bank account every month that you used to pay your monthly bills.
The next thing you want to do is track your expenses. It’s important to get a handle on where your money is going at all times. You’ll be surprised on the amount of frivolous things we buy when we don’t track our spending. Track your expenses for a month to see exactly where every dollar is going. You can go old-school with a pen and notepad or use one of our suggested budgeting apps and let them do all the heavy lifting for you. Either way, this is a crucial step in the process. Divide your expenses into categories such as housing, utilities, debt/loans, groceries, entertainment, transportation, etc. Make you include all expenses like the extras for date, the smoothie after your workout and getting the hair cut at the barbershop or your hair and nails done at the boutique. Every dollar counts.
One of the more difficult things we must understand in creating a household budget is differentiating between needs and wants. This is where we have to get a little honest with ourselves. Now that we know our expenses we need to separate our needs and wants. Need will include rent, mortgage payments, utilities, groceries, debt repayment and insurance. Wants are things that are not essential but make life more enjoyable like the dinner with friends or the daily cappuccino. I want to you to do the fun things you enjoy, after all you work hard and should enjoy life, however, it’s essential specifically define your needs and wants so you can make better decisions that align with your financial goals.
Speaking of your financial goals, it’s very important you set clear goals. Do you want to pay off debt, build an emergency fund, start a business, save for a vacation, having clear goals gives your budget purpose. You should have both short- and long-term goals. A short-term goal may be purchasing a new laptop whereas a long term goal may be buying a house. List the goal you want achieve first in each category and prioritize them to create your roadmap which will help guide your budgeting decisions.
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Are you still with me? Good! Now it’s time to create your budget. Start by listing your monthly income, then allocate income to each category starting with your needs. Remember to include a category for saving and debt repayment. You can use the popular 50/30/20 Rule if you’re unclear on where to start. This states you allocate 50% of your take home income towards your needs, 30% towards your wants, and 20% towards savings and debt repayment. Make adjustments where needed. You must include everything in your budget. If you to the movies regularly or dine out once a week with friends make sure you include it in your budget. You want it be an accurate mirror of how you spend your money. The object is to create a realistic budget you can stick to, now something so restrictive you can’t follow it. You want to enjoy life, but be fiscally responsible at the same time.
Congratulations! You’ve created your budget. You’re done right? Wrong! Creating the budget is one, but sticking to it is another. It’s easy to fall off the wagon and make mistakes along the way. Life happens. You will need to make adjustment. That’s part of the process. Each week or every month, analyze your spending and see what adjustments need to be made. Maybe you went over a little in one category but stay well under in another. Don’t be afraid to make those necessary tweaks. Also, your goals will change. Maybe you’ve purchased the laptop you were saving for so now those additional funds can go into another category. Also, your income may change. It’s important to understand creating a household budget in a process and not a fixed template.
One important piece I want to emphasize is to plan for the unexpected, which is why an emergency is so important. Life happens and your emergency fund is your first line of defense. You may get fired from your job, have a medical bill, need major house or car repair. Many experts suggest three to six months of living expenses. I would say aim for six. If you don’t have an emergency fund start saving for one now. You can typically set up an additional savings account so it will remain separate from your other accounts. It’s also beneficial to have a backup budget just in case you need to tighten the belt on spending during financial downturns in your life. This is simply a budget the includes your necessary spending but doesn’t allocate much additional spending so you can weather more efficient times with your income suffers. Again, it’s better to be prepared and have a plan in place than to be stressed when difficult times happens wondering how you’re gonna make it through financially.
Your budget is a tool to help you achieve your financial goals and it is unique to you. It’s not a one-size fits all approach, it’s about creating a plan that works for your unique situation. Whether you use the 50/30/20 or another approach, it’s ok. If you need to make adjustments routinely. It’s ok. The goal is to find a budget that works for your situation and gets you to your financial goal. You will make changes along the way and should expect to do so as your financial situation and achieved goals will continue to evolve along the process. The more consistent you are and the more committed you are the better you will become at managing your money. By following a few simple steps you’ll be on your way to reaching your goals and being in control of finances along the way. So, take a little time and start working on your household budget. In no time you’ll be able to properly manage your income and expenses in a way that will enable you to gain financial stability and be well on the way to achieving your short-term and long-term financial goals!