If you want to stay on top of your finances and be better prepared for the future, creating a monthly household budget is an excellent habit to get into. This is something that surprisingly few people do, but it gives you more security by helping you to manage your money, spend less and save more, so you won’t get into debt by relying too heavily on credit cards. This helps to relieve financial stresses and ensures that you have a cushion for times when you might need it.
Here’s how to create a household budget.
1. Set up a budget spreadsheet
The first step is to decide how you want to record your monthly household budget. You can use a paper and pen if you want, but it’s much easier to use a spreadsheet or a simple accounting program, as these will do the calculations for you.
There are many different spreadsheet and software options available online, as well as smartphone apps you can use. Some of these sync between different users, making it easier to create a household budget if you are in a couple or a family.
2. Document your income
In the “income” column, you need to list all the reliable sources of money your household receives each month. This includes your wage, your partner’s wage, child support payments and any other amounts which come in every month.
It’s a little more complicated if you are self-employed, as the amount you get paid will not be the same every month. If this applies to you, you should enter your average monthly earnings, or an estimate of the money you expect to receive this month.
If you occasionally make money from a hobby, do not include this, as it is not a reliable monthly source of income.
3. List your expenses
You need separate columns in your spreadsheet for your fixed and variable expenses. Fixed expenses are payments that are the same amount every month. These include your mortgage or rent, car loan payments and insurance. You should add these up to give you your monthly fixed expense total.
Variable expenses are those that are different each month, such as mobile phone, food, clothes, transport and utility bills. To find an average variable expense total, you need to allocate an average monthly amount for each of these expenses, and add them together.
When listing your expenses, look at your bank and credit card statements to ensure you have included everything. In addition, if you have expenses which do not occur every month, divide these by 12 to allocate a monthly amount. This will make sure you are better prepared when unexpected expenses occur in the future.
4. Work out your net income
Your net income each month is the amount of money you have leftover once all your expenses have been taken care of. You work it out by subtracting your total monthly expenses from your total monthly income. If you’re budgeting correctly, this should be a positive figure, as it means you are not spending more money than you have.
5. Make adjustments to your spending
If your net income is negative, you need to identify areas where you can save money, to avoid getting into debt. For example, if you regularly eat out or spend a lot of money on clothes, you can cut back these expenses to get your net income back to a positive figure. You should always cut back on the things you want, to make sure you have enough money to pay for the things you need.
Tracking your monthly expenditure can also help you achieve this. Keep your monthly household budget in mind at all times, and make a note every time you spend money, to make sure you do not spend over the amount you have budgeted. This is the most effective way to stay out of debt and ensure you can enjoy a financially positive future.
Find out more about how to create a budget
If you would like more advice about managing your household finances, MyFi is here to help. Our online budgeting tool is just one of the many features you can access by becoming a member. Enquire today!