6 Tips for an Effective Household Budget

Keeping to a plan to help through the holidays

6 Tips for an Effective Household Budget

Halloween and horror movies might not be as scary as you once thought they were—but maybe that’s because something scarier has replaced them: managing household expenses.

youngInvestorsB.png 6 Tips for an Effective Household BudgetWhether you’re a twenty-something, a couple living together for the first time, or an experienced homeowner with kids, the lingering concern over your finances might be the ghost that’s haunting you and won’t leave you alone.

The way to ward off this ghost, though, is to confront it and create an effective household budget to understand your finances and your limits. Let’s break it down into steps.

1. Shine some light on your spending habits
2. Slash nonessential expenditures
3. Take off the mask
4. Prepare for worst-case scenario—and holidays
5. Review and revise your budgeting strategies
6. Get more help from tools online

Now let’s take a look at each step:

1. Shine some light on your spending habits

The best way to start making a budget is to consider what you (and your family) spend your money on, on a daily and monthly basis. Here’s a list of four general categories—the first two consist of inflexible payments and the latter two are variable expenses:

  • Regular Necessities (rent, food, utilities, gas, etc.)
  • Bills and Loans (such as credit card bills, student loans, medical bills, etc.)
  • Long-Term Savings (401k, savings and emergency accounts, etc.)
  • Fun/Recreation (date night, trip with the kids, etc.)

Feel free to do this with others in your household and add on any categories they suggest to help you personalize the budget. Now, take your income and subtract out all those expenses. Include any others’ income and/or expenses in your household.

Don’t panic if the result is a negative number – this is why you’re making a budget. Designate a percentage of your income to each of these categories in order to organize your monetary priorities.

2. Slash nonessential expenditures

In the event of a negative number, you are most likely overspending. The simple solution is much harder to do than to say: cut down on spending. Particularly, sacrifice first from your “fun” category. I know it hurts, but remember that this is temporary and leads to long-term stability. Redirect the “fun” money towards debts while becoming more resourceful, eating more meals at home and putting off your vacation.

3. Take off the mask

Be honest with yourself. Don’t pretend that everything’s okay if it isn’t. The easiest way to ensure that the budget is effective is to accept how you spend your money.  If you don’t want to believe your family, for instance, spends hundreds on dinner-and-a-movie outings every month, the budget will become your enemy instead of a helpful tool. One of the best ways to predict future spending is to look at past trends—and change them accordingly.

4. Prepare for worst-case scenario—and holidays

Yes, your weekly or monthly expenses are more pressing and immediate than long-term expenses, but a successful budget incorporates both and keeps emergencies in mind. Also, don’t leave out birthdays, holidays (e.g. Halloween costumes for you or your kids), and one-time expenses.

Along with storing money for special occasions, putting a portion of your income into savings helps you see a more accurate picture of your spending money.

The whole point of a budget is to stop seeing your next paycheck as one lump sum and see it in those spending categories above. The more savings you allow, the more successful your budget will be.

5. Review and revise your budgeting strategies

Check your budget at the end of the first month and each one afterwards. Did your spending habits change? Are you still on track? Ask yourself these questions and see if the budget is really helping you. If it isn’t, don’t be scared. The first one was a test run. Revise those percentages in your budget, see where overspending still exists, and keep trying.

The virtue of budgeting is in the effort to manage money better on your own terms, not in making the ideal budget that will never be followed. As you get a better hold on your finances, things will change. You’ll be able to put more into an emergency savings account, more into investments, and more wherever necessary.

6. Get more help from tools online

If drawing out a budget on paper isn’t appealing, then don’t. Check out the Federal Literacy & Education Commission website for sample budget templates. Or use computer applications like Microsoft’s family monthly budget planner and iOS’s Numbers to provide you with templates that do the math for you. If you want to have an online application with or without a connection to your bank account online, try free online budgeting tools like Mint.com and BudgetPulse.com.

Though it might seem daunting, don’t let budgeting slide. Budgeting can be your way to take control your household savings and spending—and stop you from feeling pressured by your finances.

Written by Anisha for NerdWallet

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Article printed from InvestorPlace Media, http://investorplace.com/2013/12/household-budget-financial-planning/.

©2014 InvestorPlace Media, LLC

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