You cannot complete proper financial planning without budgeting your money. Now that you are managing a household, having a budget is important for everyone and may save your family from financial stress down the line. It's best to have a good idea of your income and expenses so you can plan accordingly when making financial decisions.
Creating a budget is easy. All you have to do is prioritize your expenses. In creating a budget, you need to be realistic about how much money you make and how much you spend.
Creating Your Budget
The first thing you should do is to get a clear idea of how much money comes into your household. List all of your income streams after taxes, and take note only of net pay.
The next step is to list all of your expenses. If necessary, gather past bills and financial documents to ensure you do not leave anything out. You can divide your expenses by week or month, or you can calculate semi-annual and annual expenses. It is also a good idea to categorize expenses. See our six suggested categories below:
Your car payment goes under Travel, home mortgage/rent under shelter; day care and utility bills under Household, and so on.
Prioritizing Your Expenses
After you have a clear idea of your financial obligations, it's time to put them in priority order. Food and Shelter should be at the top of your list. Your household will not survive without these. Next, you can consider Household as the third priority, then Travel, Communication, and Entertainment should be last.
Once you're done putting your expenses in priority order, make sure you note whether they're a weekly, monthly, or annual expense. Now it's time to scrutinize each group and figure out where you can cut back. Whatever budget you've created, if you tally them out, chances are the figures might be the same or higher than your income. You should always have enough left over to be able to put aside as savings.
In terms of Food, maybe you can revert to cheaper ingredients and products. For Shelter, maybe your mortgage cannot be compromised, but if you're renting, you can consider moving to an area with lower rent. For your Travel expenses, maybe taking the train or riding a bike to work would cut back on gas expenses. For Communication, find out if you really need that mobile phone plan, or you can downgrade your Internet provider. There are many ways you can try to cut back so you can leave more wriggle room in your budget.
Finalizing the Budget
Once you get a clear picture of your expenses, break them down into
monthly expenses, and stick to your budget. If you have to pay an annual fee on
property tax, make sure you start setting aside money for it every
month. This way, you're prepared when the big expenses come along.