The word, “budgeting” may bring visions of an old man pinching pennies to your mind, but it’s a vital thing to do to safeguard the finances of your family.
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A proper budget can help you raise yourself out of debt or keep you out of it to begin with and remove stress about money from your life. Your results are only as good as the budget you make, so here are the 3 steps you should take to create a realistic and effective budget.
1. Add Up Your Spending
Adding up your income is easy and one of the first things people do. But you’ve got to know about what your household spends over the course of an average year to create an accurate budget. Include the following:
• Household expenses such as groceries, child care, health and beauty products, cleaning supplies and entertainment
• Gas for vehicles
• Utility bills
• Loan payments, including your car and home
• Credit card bills
• Medical expenses
• Recurring costs, like birthdays and holidays
Don’t rely just on estimates. Get bank statements from the last few months to see what’s going out line by line so you don’t miss anything. Review all your bills from that time period as well, and take the average as needed. For example, if you live in an area that gets cold weather, you’ll want to add up your gas bill over the course of a year for accuracy. Just July’s bill won’t cut it if you’re not using your furnace that month.
Keep a spending diary for a week so you can factor in incidentals, such as your coffees and lunches out at work. Just write down what you spent over the course of the week and what the item was, so you can include it in the right spot on your budget’s expense part. Have your spouse or partner do the same so both of your spending habits are accounted for.
Once you have all your totals for your expenses, you can get your average spending per week or per month. Split your monthly expenses total into four to get a weekly figure. You’ll need to divide any bills that are quarterly by 13, and divide annual bills by 52. For monthly figures, multiply your weekly expenses by four, split quarterly bills into three and annual bills by 12.
2. Stay On Budget
While seeing what’s going out and coming in can be a bit stressful, look for ways to save so you can stick to your budget. While some costs may be impossible to reduce, like your taxes, you can cut down in certain areas. Generally, your credit cards, household expenses, gas and some of your utilities deserve a second look. Contact creditors to see if you can get a lower rate. Reduce daily unnecessary spending and entertainment splurges, and use that money to pay credit card debt down faster.
Walk or use public transportation on occasion to save money on gas. Utilities like gas, water and electricity are impacted by how much you consume, so introduce some conservation into your home, like making sure all lights are off when someone leaves a room. For utilities such as your cell phone and cable bill, remove features you’re being charged for but aren’t really using or can live without.
3. Get Yourself Organized
Finances are easier to deal with if you have a system that meets the needs of your household and budget. For instance, you and your spouse could put a set percentage out of each check into your account for expenses and stick to only using the remaining percentage for everyday spending. Work with your spouse to set up a system that works for your wallet and the both of you.