A budget can help you keep track of where your money is going, plan for expenses and keep you and your family financially healthy… as long as it is not too complicated or time consuming.
Our goal in this article is to show you the simplest way to set up a budget for your family and help you get control over your finances. Most people would rather have a root canal than set up a family budget, but a little bit of time spent know will save you a lot of pain in the future. The idea is to make sure you spend less than you earn!
•Keep it Simple — If your budget is too complicated, let’s face it, you just won’t use it.
•Write it Down. — While there are many “electronic” ways to keep track of your budget both on and off line, however many of these “electronic” methods have so many variables and options that unless you use one everyday, like excel or Quicken, you would be better off getting out the paper and pencil.
•What’s Your Reason? — If you’re making a budget because someone told you that it’s a good idea, then you likely won’t get much out of it or stick with it. As mentioned before, the ultimate goal of making a budget is to insure that you spend less than you make. A budget will show you where you are dropping the ball financially and provide you with the structure to fix those areas.
•The Goal. — While your primary goal is of course to control your spending, you also need a specific, long term goal for your budget. The reason for this is that during your budgeting process, you will likely be required to make some possible tough decisions on where to make cut backs to your spending. Knowing that making these hard decisions will ultimately lead you to your goal, will make the process a bit more acceptable. Many people make buying a house or being free from debt as their long term goal.
•Start With Your Income — Tally up all of your monthly income, plus any income you make on the side. You need to know what you bring home not what you “make”. Don’t just take your annual salary and divide it by 12, your budget needs to be based on “real” numbers. Look at your pay-stubs or your automatic deposit history and figure out how much money you actually bring home each month.
•Expenses. — Now the hard part… Gather all of your bills and credit card statements. Make a list of all of your monthly bills, be sure to include all of those little things that you don’t get a bill for also. The best way to get a good look at just how much you spend each month is to take a week or two (a month would be best but difficult) and write down everything you spend money on. Be sure to include all things like that coffee from Starbucks, the hotdog from the convenience store, your pack-a-day cigarette habit… everything.
•Your Budget Sheet. — Now is the time to put everything on paper. For this simple budget, you will only need to make a couple of columns on your budget sheet. In one column write down your monthly income, remember, your actual income. The next column enter your monthly expenses.
•Do the Math. — Now that you have the basics written down, add up all of your monthly income and add up all of your monthly expenses… hopefully your income is more than your expenses. Now subtract from your income your total monthly expenses… that is how much you have left over each month. That doesn’t mean that this surplus is money you can spend on discretionary items, we have a plan for that leftover money.
•Make Adjustments. — Likely you are shocked to see just where your money goes each month and hopefully there is room to make some adjustments. If you have noticed that for example you are dining out a lot, cut back on your spending by eating at home more often. Likewise if you stop at Starbucks every morning for that $5 cup of coffee, start making coffee at home an bring that with you. Keep one of your old Starbucks cup if you want to still feel like you are splurging. Spend some time looking over you expenses and make the decisions, sometimes it will be difficult, where you can cut back on your unnecessary expenses. You will be pleased and amazed at just how much money you will have left over at the end of the month!
•Reduce Your Debt. — Remember I said that we had plans for that money left over at the end of the month? Well, this is what you will use to get rid of that nasty debt. Some experts will say that when it comes to paying off multiple credit cards, the smart thing to do is to pay off the card with the highest interest rate first. While this may be the most financially sound way to do it, it is not necessarily the easiest way “mentally”. You will find that if you concentrate on paying off the credit card with the lowest balance first, you will be able to pay it off quicker, leaving you with a sense of accomplishment. This can go a long way in keeping you motivated to sticking to your budget.
•That Rainy Day. — Finally, it is necessary to plan for the proverbial rainy day. It is a good idea to have at least one month’s worth of your expenses in reserve. In a perfect world, a year’s worth of your monthly expenses sitting in savings will make you feel more financially secure than you ever have in your life. Take a percentage of the money you have left over each month, after paying all of your expenses, and sock it away in a savings account. Even if it is only 1% of what is left, over time it will add up. Once you have one month’s worth of expenses saved, work on adding two, and three, and so on until you reach your goal of one year’s worth.
If you can follow this simplest way to set up a budget for your family, you will begin to take control over your savings and spending and be on the road to a debt free and financially responsible way of life.
