The “B” word sends a chill down the spine of many people. It evokes fears of not being able to do anything with your money. Which is somehow locked into this budget and cannot be used for anything else. In fact, that is not the case. A family budget is simply a way to see where all your money is going. And most importantly, give you a plan that tells your money what it’s supposed to do, whether it’s paying bills, putting into savings or retirement accounts, or buying groceries.
Every successful business or person has a money plan. This is what a budget is, a plan for your money, telling you what to do instead of telling you what to do. With a budget you can set and achieve your financial goals. You can also get a better look at what your money can do for you now and in the future.
With a family budget, you can create a spending and savings plan that sets aside a certain amount of money each month for known and unexpected expenses. It will also give you a good record of your monthly expenses based on each month’s expenses.
The first thing to do when setting a budget is to find out what your monthly income is. If you have a salaried job, this is easy because it’s a fixed amount each pay period. If you work on commission or are self-employed, this may be more of an estimate. Write this number at the top of your budget sheet.
Now comes the fun part. Start writing down all your monthly expenses and include even the smallest of expenses. There are certain fixed expenses, like mortgage, car payments, insurance, that you have to pay every month. You’ll also need to keep track of expenses that are more fluid, like groceries, gas, clothing, and entertainment.
If you start by subtracting your fixed expenses from your income, what you have left needs to be budgeted to pay for those expenses that seem to change from month to month. Once you have finished allocating money to all of your expenses, what you are left with is a positive or negative cash flow. The great thing about a budget is that you can quickly scan what you’ve written and see exactly where the money is going. This is very helpful if you live paycheck to paycheck because you can probably find some areas where you can easily cut back or skip to leave you with extra money at the end of each month.
Here are four quick tips to help you get a grip on your budget.
1. Learn to manage money: Successfully managing money is 80% behavior. Most people work for their money instead of having their money work for them.
2. Make a plan: A budget is a money plan. Most people would never dream of building a house without a plan. In fact, almost every activity in life involves some kind of plan. But our most important asset, our money, is left unplanned and when we run out or are overwhelmed by debt, we don’t know why.
3. Needs and wants – Know the difference. Necessities are basic things like a house with a roof, groceries, clothing (in moderation), transportation to work. You don’t need a $400 extra pay to go to work or a $100 pair of designer jeans. You may want them, but you don’t need them.
4. Be a little frugal – This doesn’t mean living in a cave. You can still have fun, but make sure it fits your budget.
Creating a family budget is the first step in getting your finances under control. You will have to be patient with the process because it is likely that it will not work the first 2-3 months that you do it. But stay diligent and around the third month you’ll start to see patterns that will help you refine your budget into a financial plan that will put you on the right track.