To better manage your money and build your savings, having a household budget is important. It is basically a detailed account of how much you are earning and how much you are spending in a particular period. With a household budget, you can have a better understanding of your spending patterns and come up with strategies on how to get out of debt (if any) more quickly.
So how can you create your household budget planner? Here are some tips to consider:
Determine your net income per month.
Take note of all your income sources. Knowing how much money is coming in will help you determine how much you can spend.
Mortgage, store cards, credit cards, personal loans, and other debts have minimum payments that you need to cover on a regular basis. You can reduce your payments by consolidating some of these debts and prioritise the debt with the highest interest rate.
Essential spending items vs. discretionary spending items.
Once you’re done determining your usual income, you need to identify your expenses which fall under two categories: essential and discretionary. Essential spending items are expenses that you need to survive. These include food and payments on electricity, mortgage, fuel, and water. On the other hand, discretionary spending items refer to expenses that you want but are not necessary to survive. Examples are luxury items, vacations, entertainment, etc.
When creating the budget, exclude discretionary spending items. Create a list of all necessities first, then allocate accordingly depending on how much money you have. Discretionary expenses will come in when there is a difference between your income and your essential spending items.
Use a household budget planner.
Also called a household budget calculator, it is a tool that can make budgeting easier. This enables you to easily fill in your earnings and expenses in a week or month, and even plan for future expenses. This tool will greatly help you in seeing how much money you can save for a certain period.
Creating the household budget can be daunting at first, with all things that you need to take into account, but it will be easier once you’ve developed the habit of knowing your monthly income, essential spending items, discretionary expenses, and debts. Eventually, you will be able to have a household budget that allows you to handle all essentials and build your savings.
Got other household budget tips? You can share your ideas in the comments section below.