If you are trying to save money and hit financial goals, then you will need to start budgeting. Learn how to create a house budget.
In 2019, Americans had an average personal consumer debt of $90,460. It’s clear that as a country, we need to learn about living on a budget.
If you want to take control of your finances, read on. We will teach you how to make and stick to a house budget that work for you.
Add Up Your Expenses
It’s impossible to set a house budget without knowing how much money you spend monthly on bills.
The first thing to do is to write out each bill. You may have to look in several places to gather all the data.
Check your banking statements, credit card statements, receipts, and utility and other accounts.
Remember that some expenses are not monthly. Insurance, water, and tax bills might be paid quarterly or bi-monthly.
So, the best way to make a monthly budget when some of the bills aren’t monthly is to calculate an average.
Add up all your expenses over six months then divide by six. This will give you your average monthly expenses.
Most people include groceries and fuel for their cars as part of expenses. So even though you don’t get a bill for these items, you should still know how much you typically spend.
This brings us to our next step: tracking your spending.
Track Your Spending
With the convenience of contactless payments, paying through smartwatches and devices and so on, it’s hard to know how much money we spend each month.
One of the most important steps in creating personal budget categories is to figure out how much money you spend that is not set bills.
Add up how much you spend on eating out, getting a drive-through coffee, shopping, entertainment, and so on.
The easiest way is to figure out these expenses is by checking credit card and banking statements. They often categorize your spending for you.
These are all variable expenses. That means that there is room for you to cut back.
Determine Your Income
Now that you have a solid idea of how much money is going out of your accounts each month, it’s time to figure out how much is coming in.
Add up all your income. This includes your salary but also things like interest, child support, rental income, alimony, cash gifts, and so on.
If it’s easier, figure out your annual income then divide by 12.
Now you can compare your income to your expenses figure. Are you exceeding your income with your spending? If so, you will need to trim your expenses in order to stay out of the red.
Keep in mind that a lot of people are in the same situation because of COVID-19. Learn more about the impact of this pandemic.
The next step is to set goals.
Set Saving Goals
Think about what you really want. Is it to retire comfortably or early? Do you want to pay off your house and live mortgage free?
Perhaps you need to save for your children’s post-secondary education. Whatever your goal is, write it down. Figure out how much you need to save and for how long.
There are various saving calculators online that can help you figure this out.
Now that you have a good idea of the big picture, we move to the hardest step: cutting down on spending.
Make Cuts if Necessary
Now you see your income and spending clearly. You also have a good idea of how much you need to save each month to reach your goals.
Now is the time to cut back on superfluous spending so that you can put that money towards your goals.
This is an especially important step if you are spending more than your income each month. If you remain in that pattern or you will soon have a snowball effect of debt that is almost impossible to get out of.
Fun expenses are the first place to look at making cuts. Instead of going to eat out, can you make dinner at home and invite friends over?
Instead of drive-through coffee in the morning and eating fast food for lunch, bring your own from home.
Remember that small expenditures add up over time. $5 spent once a week adds up to $260 a year.
You may be shocked how much money this frees up. Of course, you may still incorporate some extra spending in your budget. But only allot “fun” spending money once your bills and savings requirements are met.
If the numbers still don’t add up, you may have to adjust your fixed expenses. This means cutting out or down on things like internet and cell phone bills. Maybe you cut cable or subscriptions.
Yes, it’s hard to do, but it’s worth it in the long run.
Choose a Budget Plan
A good house budget needs to cover all your needs, some of your wants and most importantly, some savings for the future and for unforeseen expenses.
There are various types of plans you can use. There are apps, envelope systems, zero-based budgets, and so on.
A good rule is to save 10 to 20 percent of your income for unplanned expenses. Keep this money in a separate account. Use it to pay for things like car repairs or medical bills.
Revisit Your Budget
Remember, your house budget is not set in stone. Your income, expenses, and priorities may change.
When that happens, it’s time to sit down and review your budget. You can make adjustments. The most important thing is to always have a budget.
A House Budget Provides Financial Freedom
Thanks for reading. Making a house budget takes discipline and honesty. But, once you do it and stick to it, it is so worth it.
Not only will you have more money in the bank, but you will also be able to be prepared for emergencies. That alone will give you peace of mind.
Come back soon for more relevant articles for your life.