Dave Brady writes about budgeting, money management, and family activities.
According to a recent Gallup Poll, 68% of Americans do not currently use a budget to help manage their finances. If you want to maximize the effectiveness of your income, stay out of credit card debt, and build a strong retirement portfolio, you've got to know how much money is coming in each month, and how much is going out. Of course, committing to a budget and actually creating one that works are two very different things. Here are six tips to get you started down the road to financial responsibility.
1. Create Your Budget
The first step in creating a workable budget is to get your numbers down. Use an online resource such as Mint or BudgetTracker, or an Excel spreadsheet, if you're computer-savvy. If not, a simple pen and paper can certainly suffice. Input all your expenses, being as honest and objective as you can. You might have to estimate certain expenses like groceries and entertainment until you get a better handle on where you stand with them.
2. Make It Complete
Things like credit card debt, emergency fund, and retirement planning certainly deserve lines on your household budget. Even if you can't earmark any money for them yet, they should never be excluded - they are components of your financial picture. Once you make cuts and your spending falls beneath your income, you can add in appropriate amounts.
3. Reduce Monthly Bills
Contact your energy company and see if it offers in-home audits. If so, a representative comes to your home, completes an inspection, and provides you with a list of ways to conserve. To save money on groceries, use both paper and mobile coupons. And, channel packages and data plans can usually be reduced to cut cable TV and smartphone costs. You can trim the fat off virtually every monthly obligation you have.
4. Include a Cushion
Some expenses are variable, such as travel, entertainment for the kids, and dinners out. When budgeting for these categories, be sure to include a cushion. You never want a last-minute weekend getaway to throw your budget for a loop. Overestimate a bit to be on the safe side - 5% or 10% is a comfortable range to allow yourself.
5. Determine Your Surplus
Your goal is to reduce your spending so it's less than your income. Any surplus you've produced, whether it's $50, $100, or more, you should use it to satisfy your most pressing financial needs first, as addressed above.
6. Be Flexible
Your budget is always going to fluctuate, for a variety of reasons. If you just had a child, you're going to get hit with a variety of new expenses. If you take a job that requires a pressed uniform, you might have to add in dry cleaning costs. On the other hand, if you decide to drop your home telephone service, be sure to update your monthly numbers. Always keep an eye on accurately adjusting your budget as life changes take place.
No one is going to create your household budget for you. It's a relatively simple task that, when complete, can make your financial life exponentially easier to track and manage - once it's in place, all you have to do is monitor and adjust it. Get started budgeting your household finances today - you might be surprised by the long-term results.
What ways can you think of to create a workable household budget?