Do you worry about money a good bit of the time? Do you want to set up a budget, but aren’t sure where to start? Here are five simple steps and tips to help you outline a budget and begin to take control of your finances.
A few basic principles are the key to setting up an effective household budget. These tasks are not hard to do, they just require some time and diligence. Whether you use a spreadsheet, paper and pencil, a notebook – it doesn’t matter. Whatever is the most comfortable for you is what you will be most likely to stick with.
1. Start with your income. If your income is exactly the same each month, that makes it easy. If it varies, figure out your average income for the last three or four months.
2. Next, list all your regular monthly expenses. Again, organize these in a way that is the best for you. There is no need to “micro-organize.” Make the categories general, such as utilities, groceries, house payments, car payments, charitable donations, and so on.
3. Now we get into more detail. This is the most time-consuming part, but it will give you a realistic picture of your finances. It’s the “meat” of the plan. Write a detailed list of what has actually been spent in each category over the last three months. Tally your utility bills, credit card payments, grocery bills. If you have paid for groceries by credit card, debit card, or checks, you have a record of them. If not, even recording one month’s worth of grocery spending is helpful.
[pullquote align=”right” cite=”” link=”” color=”” class=”” size=””]It is easier to spend than to save. Some of us have had our incomes shrink. What if that income would shrink still more? Why not pretend it has shrunk and put the difference into a fund for rainy day use? Woman’s Weekly, 1922[/pullquote]
This step can be an eye-opener. You may be surprised at what you are really spending in certain areas. I’m always shocked at what I am spending a month on groceries. This is where I need to work on cutting back.
4. Now that you have a clear record of your financial picture, look at the categories that need some adjustments. An important consideration here is to distinguish between wants and needs. Be honest about this. I may need a new pair of shoes that are good quality and comfortable, but they don’t have to be expensive designer shoes.
5. Finally, and this may seem obvious, your expenses should not add up to more than your monthly income. If so, the plan you have created will enable you to see where you can cut back and where you can’t.