3 Simple Steps To Creating A Household Monthly Budget

By on December 18, 2017

The word budget can cause nervous breakdowns for the faint hearted.

Because people often associate the dreaded word with spending less, it is often forgotten that it is also a word for not over spending.

This means that big budgets can still allow you to book your weekly appointments for retail therapy.

Whether you are on the high or low end of the budget scale, the very purpose of setting one is to stay within it.

Even the rich and affluent have budgets.

We seldom need anyone to remind us of the letters in red fonts that can arrive in the mail when we overspend.

Every dollar adds up. Surely you don’t want your sweet obsession with chocolates to be the catalyst of a foreclosure?

We can sometimes be so caught up with what is going on in everyday life that we could be bleeding negative cash flow without noticing.

When this is indeed happening, a sudden setback can throw you into financial mess. It’s better to catch the overspending virus early before it gets full blown into a major illness.

1) Break down your expenses into categories

You won’t be able to surgically remove evil expenses when you are unable to identify it.

This is the most tedious step of it all, especially when you are one of those who cannot even be bothered to go through your credit card statements each month. But if you are serious about budgeting, this is probably the most important step of all. It is where you want to be the most meticulous.

Here are some of the categories to work on.

Housing. Rental, mortgage, real estate taxes, housing keeping supplies, fire insurance, home contents insurance, homeowners insurance, utility bills, toiletries, miscellaneous expenses on decorations and furnishing.

Food. Frozen food, canned food, groceries, takeaways, meal deliveries, snacks, drinks, alcohol.

Credit bills. Credit lines, credit card bills, personal loans.

Transport. Car loans, petrol, auto insurance, car maintenance, parking fees, servicing costs, costs of taking public transport.

Personal care. Shampoos, skin care, cosmetics, hair care.

Medical. Health insurance, insurance deductibles, over-the-counter pharmaceutical supplies, vitamin pills.

Insurance. Other types of insurance not yet mentioned.

Recreation. Gym memberships, vacation holidays, magazines, cable subscription, movies at the cinema, restaurants, mobile data plans.

Academic. School fees, tuition fees, textbooks, stationary supplies.

Gifts. Weddings, birthdays, anniversaries, baby showers, festivals.

Savings. Amount you save each month.

Clothing. Laundry services, new clothing, repair and maintenance.

Some expenses are not incurred on a monthly basis. They can sometimes be quarterly, bi-annual, or annual payments.

In this case, work out a monthly cost for it and include it into your budget calculations.

For example, if a subscription for a fancy yoga membership costs $1,200 a year, divide it by 12 and add the resulting $100 into your monthly expenses.

Once you have itemized your expenses, it is time for step 2 of step 1. I know that sounds weird… but stay with me here. You have to split your expense items into those that are fixed and those that are variable.

For example, your mortgage/rental, utility bills are essential items.

You won’t be able to eliminate them. You could live like a caveman and stop using electricity.

But come on.

If you have to go to that extend to save money, you probably have bigger problems than just drafting a budget plan.

Non-essential and variable expenses are those that you can live without or can easily minimize. They include gifts, donations, branded bags, etc. Once you have your list ready, take note of the items that you can easily minimize or totally cut off.

2) Track your spending

It might not be possible to dig out all your receipts from the previous month. So for the next month, keep track of all your expenses, even to the tiniest penny.

Small looking dollars can pack a heavy punch when you add them up. You might fall off your chair to find out that you had spent $200 on coffee at the end of the month.

When you have finally drawn up your money tracking sheet for a month, you will know where exactly your money is going.

If keeping receipts is too troublesome, you can use software to help you. When you decide to go with software, just remember to update your expenses with discipline.

3) Put it together

When you input the expenses that you actually spent onto the cheat sheet you created in step 1, it will be clear to you where you are spending your essentials and variables.

The next thing you have to do it so determine the affordability.

After taking into account your household or personal income, you will be able to see whether you are in the black or dangerously sinking into the red.

If you have a healthy surplus after subtracting your expenses from your income, you might want to start seeking investment products to put your extra funds in.

And if you are into the red, start taking out or cutting down the variable expenses you have identified. Cut back of pizza deliveries or get a lesser membership at the gym.

You really need to watch your spending.

If you are still in negative territory after completely removing all variable expenses, you are in trouble.

This is a time for your to think about what types of major changes you need to make in your life.

Because if you continue down this negative road, bigger trouble could be on the horizon soon. And it might be too late to do anything about it once you get over that tipping point.

Consider downsizing to a smaller car, take on a second job, cancel your cable subscription, downsize your insurance coverage, whatever. Take action now before you regret it for the rest of your life.



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