You know you need a budget. Your household is spending money faster than it is coming in, making bill-paying a monthly adventure. Will you have enough dollars to pay the phone bill this month? How about the car payment? You never know.
Fortunately, creating a workable household budget -- one that gives you the tools to make sure that you are not spending yourself into debt each month -- is less complicated than you might think.
All it requires is that you take a honest look at what you spend each month and what you earn. The hardest part is sticking to your budget once you've drafted it.
UMassFive offers Budgeting 101 workshops for members, to help answer all of your budgeting questions!
Eliminating the Fear From Budgeting
The first step is to realize that a budget is not mysterious. As the Website One Money Design says, a budget is nothing more than a financial document that you use to track your income and expenses. You can use electronic budgeting software to create your household budget. Alternatively, you can just use paper and pencil. Choose the method that feels right for you.
One Money Design recommends that you set a definite date -- one that's not too far away -- to create your budget. If you are married or living with a significant other, you need to include your partner in the budget planning. This is important; a household budget will not work if you are watching your pennies, but your partner is blowing $5 every morning on expensive coffee.
When you start to create your budget, you'll need some necessary paperwork for reference, most notably your most recent bank statements -- preferably at least three months’ worth. You'll also need things like paycheck stubs, rental checks or disability payment stubs that document your monthly income.
Income and Expenses
To start your budget, list your regular monthly income streams. This will obviously include your monthly salary. It should also include any rental payments you receive, child-support or alimony payments, payments you receive for freelance work, monthly disability payments, and any monthly fees you receive as a result of a legal settlement.
Now that you know exactly how much money comes into your household each month, it is time for the trickier part, listing all the money that flows out.
A budget typically includes both fixed and variable expenditures. Fixed expenses include your monthly mortgage bill, car loan payment, student loan payment, monthly garbage service and rent. Others vary each month. This includes the money you spend on groceries, electric bills, the phone bill, the money you spend on gas, clothing and the dollars you spend on entertainment. Your budget should also include dollars reserved to build an emergency fund. This way, if an emergency does happen you will not have to add more debt to take care of it.
The key to listing expenses is to be realistic. Your budget is not realistic if you do not save any money to go to the movies, eating out or taking short trips. Are you really committed to not having fun for a year or more?
You should also adjust your budget regularly. This is especially important. If your company cuts your working hours, shaving dollars off your monthly income, you'll need to factor that into your budget. If you pay off your car loan, you need to eliminate that expense from your budget.
UMassFive offers Budgeting 101 workshops for members to help answer all of your budgeting questions!
Shoring up Your Budget
If you find that you are blowing your budget every month, it might be time to make changes either to your budget or to your spending habits.
Maybe you've been unrealistic with how much you want to spend on clothing and entertainment each month. Adjust those budget items so they more accurately reflect how you live.
Alternatively, maybe you need to change the way you spend. Holidays, for instance, are a terrible time for budgets. It is easy to get carried away on presents and entertaining. Decide exactly how much you are going to spend. Don't go over that limit, no matter how much advertisers would like you to. You might also adjust your travel habits. It is fun to vacation, but you might want to take shorter trips or stay in less expensive hotels if this would help you meet your household budget goals.