Managing a household budget for many families can feel like attempting to hold water in your hands. No matter how tightly you hold your hands and fingers together, the water always seems to strain through. These steps can help you get a handle on your spending in relation to your income,
Determine Your Total Income
Before you can get a handle on your household budget, you must first determine how much money you have to work with. This means you need to understand the total money coming in each month. This includes things like salary, royalties, child support income, etc. Knowing how much money, exactly, you can count on coming into the budget each months help you to establish how much you have available to work with.
Calculate Total Monthly Expenses
This part is often more difficult. First, there are the obvious expenses. These are the bills you pay each month. They include things like:
- Mortgage or Rent
- Utility Payments
- Child Support
- Child Care
- Student Loan Repayments
- Insurance (home, auto, life, etc.)
- Mobile Phone Bills
- Internet Service
- Auto Loans
- Credit Card Payments
They are all important expenses, but they aren’t your only monthly expenses to consider, calculate, or include in the household budget. They leave out to many incidentals that must be counted, such as the following:
- Household Supplies
- Entertainment (concerts, movies, dining out, date night, etc.)
- Work-related expenses (professional wardrobe, hair styles, parking fees, etc.)
- Auto Maintenance
- Auto Fuel
- School Supplies for Children
- Wardrobe for Family
These things may be considered little things, but they add up fast and put a considerably strain on the monthly and yearly household budget. They are also often left out of the budgeting process, which serves to sabotage your efforts to stay on budget once you’ve established one.
When calculating be as specific as possible. If you must round, always round up. For bills that fluctuate from month to month, use the historically highest amounts when establishing your budget so that unexpectedly cold months don’t sink your budget so that you can pay for your heating bills.
Identify and Eliminate Bad Debts
Any debt that doesn’t add value or lacks the potential to do so is considered a bad debt. This means that mortgages and educational loans are good debts because they have the potential to add value. The same holds true for business investments. Bad debts are things like auto loans, when the automobile depreciates every year you own it and every time you get behind the wheel and drive. Credit card debts are also bad debts and should be paid off as quickly as possible and avoided whenever possible in the future. If you must use credit cards try to pay the entire balance monthly so that interest doesn’t accrue.
The faster you get rid of these bad debts, the more wiggle room you will find in your household budget month after month because you’re no longer chasing your tail attempting to pay these bad debts.
Get Rid of Unnecessary Expenses
Take a look at your bills and determine whether you are getting your money’s worth on them. Look for ways to make your home more energy efficient, for instance. Eliminate the daily coffee run and make your own instead (this conserves fuel and saves on overpriced coffee). Make every other date night a date night in. Also look at your mobile phone and cable bills. How many of these channels do you actually watch? Do you use your allotted data each month? Could you save money by switching to a mobile plan that offers talk and text only? Consolidate all your credit card balances onto one low-interest credit card and set a course to pay that balance off as quickly as possible.
Establish Your Budget
Once you’ve followed the steps above you can set about creating a budget that allows for all of the following:
- Pay all Monthly Bills on Time (eliminates late fees and helps to build a better credit score)
- Reduce Debts (always a good thing for anyone struggling to maintain a healthy and successful household budget)
- Establish a Rainy Day Fund
- Set Aside Funds for Retirement
- Invest Money (generating more income for your household now is a great way to build a bigger household budget for the future)
- Give to Charitable Causes (giving to others helps you learn to be grateful for the gifts you have and sets a great example for your children to follow)
These simple steps will help you quickly identify any areas where improvements need to be made and help you manage your household budget more successfully. Mark Rotstein has been helping some of the most successful households in Toronto manage their household budgets and more for years, perhaps his advice can help you with yours.