In a country where most people spend almost 80% of their income, it is only natural to try and work with a budget. A 2017 survey by the US Bureau of Labor Statistics estimated that households received an average pre-tax income of $78,635, while household expenses averaged at $61,224.
There are so many expenses to keep up within the modern American household, including rent, gas, healthcare, childcare, clothing, and entertainment. Working mums will especially find it easier to use a budget to better manage family finances. Read on for tips on building an excellent budget for your home:
1. Use Spreadsheets
Spreadsheets are a reliable tool for the savvy businessperson, as they make calculations, cash flow analysis, and cash management more straightforward. These tools are also ideal for household budgeting, and they can help you keep track of your expenditure.
Beyond Google Sheets and Microsoft Excel, there are many spreadsheet options for household budgeting. You can explore free programs like Vertex42 Spreadsheets, It’s Your Money, PearBudget, and Mint’s Lifestyle Budgeting Sheets. Choose a spreadsheet that you can share with other family members to make budgeting a team effort.
2. List Your Financial Goals
Financial goals vary from family to family, and you should select objectives that align with your household’s values. For example, do you want to simply live below your means or travel more?
More and more American families, for example, want to start saving for their kids’ education, given how expensive college has become. Between 1980 to 2014, the average yearly increase in college education grew by almost 260%, compared to 120% for consumer products.
You can engage your family members to decide what is more important between goals like early retirement, improving your credit score, setting up an emergency fund, and saving a down payment for a home.
3. List Your Income
The next step is listing your monthly income from all your sources. While wages and salaries are straightforward, you should also include alimony, child support, rental property, and stocks where applicable. It is advisable to work with reliable sources of income to be confident that you will get the budgeted amount every month. If you have fluctuating income or are a freelancer, you can work with the expected monthly income.
4. Track Your Expenses
The most challenging part about creating budget households is tracking your expenses. If you live in a busy household, it is overwhelming to keep track of groceries, school expenditures, mortgage, bills, credit card payments, recreation, student loan payments, and shopping. The tips below will help you to track your expenditure:
- Evaluate Bank Statements- This is an excellent place to start, as it will feature your withdrawals and injections. You can also map out spending patterns to understand your home’s spending habits better.
- Use A Spending Tracker– You can log in your purchases in a spending app and analyze the monthly reports. There are both free and paid tracking apps, and some will let you link your bank accounts.
- Categorize Your Expenses- Note down the fixed expenses you cannot reduce, including mortgages and car payments. Variable expenses vary from one month to the next, and they include groceries and gas bills. Include discretionary expenses, which are optional for most families, and which include subscriptions and recreation. These expenses are often the first to be cut when you need to reduce your bills.
5. Analyze Your Spending And Make Changes
You can track spending within a month or two to get a clear picture of your spending patterns. A lot of people are often surprised by the amount they spend on items like entertainment and coffee
Now that you know where your funds go, it is time to make the painful decisions of cutting out some items from your expenses. It is advisable to ensure that your household essentials do not claim more than 50% of your monthly income. You can easily cut your spending through:
- Reduce Eating Out- We all love to congregate at our favorite restaurants and catch up with family and friends. However, cooking at home instead can be an excellent way to reduce your food expenditure and get your family healthy.
- Cut Unnecessary Subscriptions- It is relatively easy to pile on subscriptions, from streaming services, weight loss programs, cell phone plans, to the internet. Ask yourself how much you use your subscriptions, and if you can live without them.
- Reduce Electric Bills- Invest in energy-efficient home appliances as they will reduce your electricity expenses. Small changes like updating your water heater, using a programmable thermostat, and turning on the dishwasher when there is a full load will reduce your utility bills.
- Use Shopping Lists- Shopping lists can help you tame impulsive shopping, particularly when wandering through large stores. You can reduce your grocery expenses by planning your meals and buying items in bulk.
- Freezing Credit Cards- If you are overwhelmed by your credit card debt, you can temporarily freeze your cards to stop new charges. You can then focus on clearing your existing debt to a manageable level.
- Look For Affordable Entertainment- Lookout for family-friendly entertainment options that are more affordable, and you can get your kids involved in hobbies like photography, baking, and sports.
6. Build Savings
Set aside at least 20% of your income towards savings and debt repayment. An emergency fund is especially important to cover unexpected expenses like medical emergencies, pet emergencies, and auto repairs. Save three to six months’ worth of your household expenditures in your emergency fund.
If you are faced with an emergency without enough money, consider getting an online installment loan instead of fast cash loans. Depending on your credit, you can get $1,000 to be paid over a longer time with a fixed number of payments.
7. Commitment
Creating a budget is easy, but you will need plenty of willpower to stick to it. It will be easier to cut spending if you save for a concrete goal that keeps you motivated. Sticking to a budget also means reducing impulsive spending, and you may need an accountability partner like your spouse to keep you in check.
8. Re-evaluate Your Budget
A budget is not written in stone, and if you have kids, you will have to be realistic and flexible in your spending. If you need to spend more on groceries because of a birthday party, don’t feel guilty for the increased expenses. However, you should re-evaluate the financial plan to track your progress and reward yourself for your milestones.
