Many people in America live paycheck to paycheck. They keep spending every two weeks until the money runs out. Pay day is their big spending day and at the end of the pay period they’re scrambling to pay the bills. If you keep up a pattern like that you’re setting yourself up for disaster. Before you know it bills are late, then delinquent, then your credit is ruined and you can’t get a car or a house.
If you want to make sure that you have complete control of your financial future you’ll need to set up a simple household budget. The task may seem daunting, or perhaps just plain boring. But without a budget you won’t know where your money is going and you won’t be able to reach your savings goals. Here are some simple household budgeting tips to get you started.
The first part of any budget is to figure out your earnings. If there are multiple incomes, add up all the income each of you generate in a month. If you get paid every two weeks, just double your usual paycheck. At the end of the year you’ll have two extra paychecks this way. If you get paid weekly you will multiply that by four. At the end of the year you’ll have four extra paychecks if you calculate it this way. If your income varies, simply get an average of the amounts. A budget isn’t going to be exact down to the last dollar, it’s just a general guideline of how your money is spent.
The second part of a household budget is your expenses. Calculating your expenses isn’t necessarily more difficult, just more time consuming. There are several types of expenses. First you’ve got your fixed monthly expenses which are easy to figure out. Then you’ve got your monthly expenses that vary, such as groceries or clothes. Finally there are those pesky unexpected expenses. What you need to realize about those is that if they happen every year or every month, they are not unexpected. In order to get an accurate amount of your total spending, write down everything you spend on a notepad or with an app on your smartphone.
The next step in your budget is to calculate the difference between what you earn and what you spend. You should hopefully have a surplus, which is called positive cash flow. This extra amount is what you should be depositing into different savings account. One is your emergency fund while the other is your retirement account. If you have a shortage, you have two choices: increase your income or lower your expenses. Since increasing your income is much more difficult, we’ll discuss lowering your expenses.
Lowering your expenses
If you have discovered that you are spending more money than you are taking in each month you need to make some changes to your lifestyle. You need to distinguish between your needs and your wants. You can cut back on just about anything. If you’re getting hit with late fees set up automatic payments so you’ll never forget to pay a bill again. Turn off the lights when you’re not using them. Get rid of cable TV. By taking these and other steps you’ll be able to decrease your expenses and be able to establish a healthy savings account.