The dawn of a new year typically means "new beginnings" for many people, and this can include developing a household budget. Resolutions are made to lose weight, exercise and wrangle finances under control. On the heels of holiday shopping, many people wake up with a financial hangover once the credit card bills begin arriving in January. Getting caught up in holiday spending can certainly throw even the most disciplined budget out of whack, however it's never too late to make changes and conduct a full household budget for the new year.
Right now all you know is that you feel broke. If you are unsure where the money goes or how it's being spent, it's time to create an itemized tracking system that will bring awareness to how and where each penny is going.
Approach your household budget review as a family. Kids sometimes think that money really does grow on trees, so a terse review in family finances will open their eyes to how money should be spent.
Track Down Income and Expenses
Take a systematic approach to data collection. If you pay bills online, refer to your online banking system to furnish reports and information about regular invoices. You can also back track spending habits through online banking and reviewing credit card statements.
To get a solid idea of where you money goes from month to month, gather at least three months worth of statements including:
- Monthly bills and invoices (if you don't have copies on hand, request copies from each vendor)
- Bank statements (either paper or through online banking)
- Credit card statements, including debit card transactions
- Monthly income statements from every contributing member of the household
List Ongoing Income and Expenses on a Spreadsheet
If you have a fixed salary, break down how much you make after taxes per month. If you are paid per hour or job, take the average of three months to give you a ballpark idea of how much income you should receive each month. Identify all important monthly expenses such as mortgage payments, rent, electrics, groceries, car payments and gas, health insurance and school expenses. Write down how much money is spent on each area every month.
Identify Variable Expenses
Some important expenses may not be paid every month, but will appear from time to time. Expenses such as dental and medical payments are vital but may not be a constant every month. Also, refer to your bank statement and credit card bills to determine how you spend money for entertainment, dining and clothing. Some credit card companies will provide you with a report that breaks down how much you are spending for restaurants, shopping or entertainment. Examine these expenses carefully, as some consumers don't realize they spend as much as they do for certain things such as eating out.
Do the Math
Combine your fixed and variable monthly expenses into one number and subtract it from your monthly income to determine if you are living within your means.
Should you be one of the lucky few whose income exceeds their expenses, identify specific savings vehicles that can help you prepare for the future. Areas to consider include your office 401(k) or 403 (b) plans, IRAs, a money market account or you can even use the excess to pay off high credit card balances or make an extra car payment.
However, if your expenses exceed your income and you are prepared to make a fresh start in 2011, examine which areas can be cut. If your financial statements reveal that you spend too much money eating out, consider cutting out your daily visit to the coffee house or bringing lunch to work instead of eating out.
Another area to consider cutting are luxury services such as lawn care, housekeeping or pool service. Run the numbers until you see a significant dent in your expenses. When it comes to reviewing your household budget for the new year, remember that new expenses can crop up. Always have reserves available for any surprise expenses and replenish those reserves when you are in an income surplus situation.
Gina Ragusa is a freelance writer and mom from sunny (and sometimes not) South Florida. Her 15 year experience ranges from writing about banking to tattoo parlors. Read more about her adventures at http://blog.wahm.com/