New Year? New Budget Resolution

New Year? New Budget Resolution

Managing household expenses, for many people, is not a fun thing to do. But as the ball drops in Times Square, many are resolving to make it a goal for the coming year. Keeping track of and managing your finances and creating an efficient household budget is essential and will help you manage your spending within the limits of your finances.

Why Is It Important to Have a Household Budget?

Creating and maintaining a manageable household budget is a financial resource you simply cannot overemphasize. If you are looking for financial security for yourself and/or your family, getting your finances under control is your only answer. If you are not convinced, below are three reasons why a household budget is essential.

  1. It Ensures You Are Not Spending Money You Don't Have

    Too many individuals spend more money than they actually have, and it is usually because of credit cards. In fact, according to WalletHub, each household's average credit card debt was at $7,849 in Q3 2020.

    Individuals who abuse and overuse their credit cards do not always realize they are spending more than they have until they begin drowning in debt. If you create a budget and stick with it, you will not get yourself in this situation. You will know exactly:

    • Your earned monthly income
    • The amount you can afford to spend each month
    • The amount you will need to save
  2. It Helps You to Stay On Track With Long-Term Goals

    A household budget will help you determine your long-term goals and allow you to work towards them. Without a plan in place, you will end up drifting through life aimlessly, throwing money at shiny impulse buys. You will not be able to save money for that much-needed vacation, new car, or a down payment on your new house if you are spending like this.

    A budget will force you to map your goals out, save your money, and keep track of how you are doing so you will be able to finally achieve the goals you set out.
  3. It Helps You to Identify Problem Areas

    Today, people pull their debit cards out for just about every purchase. However, this can present an issue - you are actually detached from how much those purchases are costing you. Those little amounts that come out of your checking account are easy to ignore.

    When you have a budget, and you can begin tracking your expenses, you may be surprised. Perhaps you racked up a pizza or food delivery bill the following month, or maybe you went a little overboard on your grocery spending.

Where to Begin

To get started creating a household budget spreadsheet:

  • Figure out your after-tax take-home pay. If your employer is automatically taking taxes out of your check each week, it should not be that hard to determine what your take-home pay is. But, if you are self-employed and your income is irregular, there are a couple of methods you can use to figure out your take-home pay:
    • If you recorded your last 12 months' worth of income, take the average of your total monthly income for the previous 12 months.
    • If you did not keep a record, use the income of the previous month you just made to determine this month's take-home pay.

    Whichever method you decide to use, subtract your obligations like business expenses and taxes to figure out your take-home pay.

  • List your expenses. List all of your month's expenses, writing down the exact amount you spend on each expense.
  • Determine the amount to spend in each budget category. Once you have established your monthly income and what you actually spend, check if you are making more money than you have expenses. If your expense column ends up being more than your take-home pay, you need to figure out where you can cut your spending back.

  • Next, you will want to figure out if your spending is reasonable in each category. To do this, you can take a look at the national average. For instance, if the national average for dining out and food is about 10% of your income and you are spending 20%, you will know to cut back in this area.

  • Track your spending each month. Once you have set your budget up, go over your spending during the month. If your spending goes off track, make the necessary adjustments.

Things to Consider When Creating Your Household Budget

  • Your spending habits. First, figure out your spending habits. You may already have an idea of what you are spending each month. Still, if you do not actually do the math, you will not have a precise total of the amount of money you have going out.
  • Your non-essential expenses. Once you have figured out where you are overspending, cut it out if it's non-essential. For instance, you can cut things that are not important, like non-essential shopping sprees for the latest tools or fashions or entertainment.
  • Review and Adjust Your Budgeting Methods. At the end of every month, look your budget over and figure out if you have changed any of your bad spending habits. This will help you determine if you are staying on track, and if you are not, you will need to make adjustments to your spending.
  • Use Online Tools for Help. If writing everything down seems tedious to you, you could use online tools. There are special programs available that will help you create household budget templates to help organize your finances.

Takeaway

A budget provides you with more control over what you are spending your hard-earned money on and shows you the areas you can make cuts if necessary. But, your first step is to create one if you have not already.