Money management is a skill that a lot of people struggle with. This is entirely common and you shouldn’t let the idea of budgeting frighten you. Just about anyone can develop the basic skills necessary to lay out a useful budget. All you are really doing is taking a closer look at your money priorities and setting some guidelines for your future choices.
You don’t have to create a complete budget in one sitting, either. Good budgets take plenty of refinement over time.
Here are 6 ways to set a realistic budget for your household today.
Simplicity Is Key
Many people assume that a computer and a spreadsheet program are essential for household budgeting. These tools can be helpful if you already know how to use them. You can accomplish a lot simply using pen and paper. Remember, all you are really doing is looking at your household income, collecting your expenses and setting some long-term goals.
Why Goals Matter
As noted above, an effective budget should function as a tool that helps you make financial choices. That job is a lot easier when you have an overall financial goal. It allows you to prioritize your options and pick out the most favorable ones. Setting goals with time limits – reasonable ones – is a great way to motivate yourself to make financial changes.
A good budget performs a couple of important jobs for you. First, it makes you more aware of your financial habits. Once you are thinking about those habits, your budget can show you how to improve them. The goals you attach to your budget will encourage you to make more forward-thinking decisions with your money.
Tracking Your Expenses
It’s an excellent idea to categorize your expenses when you start your budget. Separate discretionary spending from fixed expenses that recur on a regular (usually monthly) basis. Examples would include mortgage payments and insurance premiums.
When you start pulling together your discretionary expenses, you may start to see your first financial insights from the budgeting process. It’s often surprising to see how much money you spend on clothes, dining, gifts, travel, and other costs. Lump together all of your expenses in each category you identify and track them from month to month.
Paying Down Your Debts
If you are paying off student loans or carrying a balance on your credit cards, your budget should include plans for getting rid of those debts over time. If at all possible, set aside a sum that exceeds your monthly minimum payment on your debts and use it to pay them down regularly.
If your debt problems are more pressing and you cannot find room in your budget to meet your minimum obligations, consider working with a credit counselor. Like any financial advisor, a credit counselor needs to be checked out before you start using his or her services. Verify the counselor’s credentials and learn more about their reputation with past clients.
Build An Emergency Fund
Take a look through your past utility bills and make a note of the very highest amount you have ever had to pay in the past. Set this figure up as one of your budget’s goals. You want to create a buffer of at least that much. Your budget can also include reserves set aside for dealing with emergencies. Consider using your surplus cash for investment, but only after you have started setting aside emergency funds.
Reconsider Your Billing Dates
If you find it a constant struggle to handle multiple bills that come due very rapidly, you can take action to change the situation. Shift your billing cycles around so that your bills fall due throughout the month rather than piling up within the span of a few days. Spacing your bills so that they arrive with the same frequency as your paycheck is an excellent idea.
Good budgets change and evolve over time. Don’t feel like you are enacting ironclad laws when you first begin to construct a budget. It will take time to cultivate your financial skills and get used to the budgeting process.
Remember to adjust your budget when your financial circumstances change. If your pay goes up or you pay off a debt in full, make sure you plan out how you will make use of the extra money that will be coming in. Stick with your budget over time and you will start to feel like you have better control over your finances.