Money is a huge stressor for most people. Spend less, save more, and stick to a budget are three ways to help eliminate some of your money frustrations. But sticking to a budget is often a challenging task. Even with great planning, emergency expenditures come up. Cars need repairs, health issues arise, and companies downsize their staff. While you can’t eliminate or completely prepare for those unexpected occurrences, having a budget can help you mitigate some of financial burden. Here is a simple method to create a basic home budget.
A BASIC HOME BUDGET
Depending on your financial situation and specific needs, you may need to seek the advice of a financial advisor while you are setting your budget. I am not a financial advisor and the basic budget I am discussing is for those who are looking for a simple way to start taking control of their finances. The method I outline below is a very simple budgeting system designed to increase your awareness of your debts and spending habits, and help you learn to stick to your budgeted expenses. Once you have a good understanding of these budgeting basics, you can move on to cutting your expenses and trying to keep them at suggested percentages of your income.
KNOW YOUR NUMBERS
Before you can start saving and setting financial goals, you need a realistic idea of where you are at. You need to track your exact income and expenditure amounts so you can have a firm idea of how to move forward. You can’t measure, change or improve what you don’t know! Awareness is a huge component of getting your finances under control.
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BUDGETING BASICS:
Here is a simple method to create a basic home budget:
STEP 1: TRACK ALL INCOME
Write down all sources of monthly income. Write down only the “take home” amount, not the gross amount before taxes and other deductions. You want to document what you actually have to spend or save for that month. You can use the monthly budget template below to track your income and expenses. List and total all your income sources.
STEP 2: TRACK ALL EXPENSES
Write down all monthly expenses. A great way to start tracking your expenses is to write them down as you get the bill. Document the minimum payment, or amount you routinely pay, under the actual section. Total all your monthly expenses. Skip the “budget” column for now. Right now, you are just determining what you actually required to spend each month on bills. Total all your monthly expenses.
STEP 3: INCOME-EXPENSES
Subtract your total expenses from your total income to determine how much you have left over each month to pay off debt or add to your savings.
STEP 4: START BUDGETING
Now that you know your exact monthly income and your total monthly expenses, you can complete the “budget” section. In order for you to accurately budget your monthly expenses, you need to know exactly how much your actual expenses are every month.
After budgeting enough for your actual expenses, you now know how much income you have left over for additional savings and for putting toward paying off your large debts. Now you have all the information necessary to create the “budget” section.
There are several things to consider when you are setting the budget amounts for your expenses. First, if you are looking to spend less each month, you need to look for expenses you can eliminate. You also need to determine which expenses you can reduce by shopping around and finding a better deal. Finally, you must remember to have enough money in your budget to put some of it into savings.
Things to do when budgeting:
Pay yourself first!
Start by adding to your savings. Create a $1,000 emergency cash fund to cover unexpected expenses like car repairs if you don’t already have one. Once you have established the emergency fund, start putting the additional money into a savings account or retirement fund. I would suggest meeting with a financial advisor to determine what savings options are best for your and start reading books on financial planning to build a savings that meets your personal, long-term goals.
Review all your expenses.
Determine the items that are not essential and cancel those accounts. Eliminate expenses such as monthly subscriptions or services, club memberships, cable TV, and other nonessentials. Cut out things you don’t use frequently or can live without. For necessary items, like cell phone service, internet service and utilities, shop around! Do your research, compare prices and contracts, and switch providers. Recalculate your total monthly expenses after you have eliminated items and cut costs through comparison shopping. Any extra cash you have left over after eliminating your nonessential expenses and cost saving efforts should be put toward paying off your debt.
Track your total debt.
A great way to help you determine the amounts to budget to pay off debt each month is to create a separate worksheet to track all of your large debts like mortgage, student loans, car loans and credit cards. You can use the template below to track those big debts. Write down the total balance on each debt, minimum monthly payment required and the interest rate for each account. List the debts from smallest amount to largest amount.
Pay off your debt!
Start by paying the minimum payment on all debt and pay your extra monthly cash on your account with the smallest balance. Starting with your smallest debt amount allows you to get a quick win! The feeling of accomplishment you will have after paying off one debt will give you the motivation to keep going and conquer more debt! After you have paid off the first debt, take that payment amount and add it to the next debt. After you pay off the second account, take the money you used to pay the first and second account and add that to the payment for the third account. (Be sure to continue to pay the minimum payments for all your debts throughout this process.) Keep going with this process until all your debts are paid off. It is a great snowball effect!
YOU’VE GOT THIS!
Creating a basic home budget can help ease some of the stress caused by money worries. Knowing exactly how much you are saving and spending each month keeps you on target financially and helps you create a plan to pay off your big debts. Total your income, track your expenses, eliminate unnecessary expenses, start saving more money and start paying off your debts one-by-one and take control of your home finances! Learning how to create a basic home budget is a great tool for reducing your money worries!
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