Creating a basic household budget is one of the first steps you are taking to improve your long term financial stability. Budgeting helps you to save considerable amount of money, eliminate debt and also ensure a good financial future. A successful budget will help you to monitor your income and expenses so that you can cut off unwanted expenses and save money.
You can set up a budget by following some simple steps. Let us look how to set up a budget?
Where to start
This is the first step in creating a successful budget. This involves two basic things – how much income you earn and how much are your expenses. By setting up a budget your aim is to make a balance of your earnings and expenses. You can easily find out your income by collecting your past paycheck stubs, dividend receipts etc. To know your monthly expenses just make a research of your last three months expenses by collecting your bills and receipts together. Write down all your income and expenses separately.
Determine the time frame
This is the second step to set up a budget. In this step you need to decide which type of budget you need that is weekly, monthly, quarterly or yearly. Most people tend to create a monthly budget. It is acceptable. But remember there are certain expenses that are paid bi-monthly, quarterly, half-yearly, or even annually. These expenses include vehicle insurance, home insurance, income tax, and property tax. Hence while creating a budget you need to make provisions to cover these expenses with your income.
Select the number of categories and subcategories you need to include your expenses. Some people create only less number of categories, some like more categories, while some others use subcategories. This depends on how detail-oriented you want to be. Some of the general categories include –house, auto, food, utilities, medical, and insurance. Some of the general subcategories you could include are maintenance, auto insurance, food groceries, fuel, dining out, takeout etc. You can add or remove any categories or subcategories later.
Establish spending amounts
After creating categories and subcategories you need to review the income and expenses you have collected. Now put the expenses in the correct categories or subcategories and total them to know how much you are spending. Compare your expenses with your income. If your expenses are higher than your income think which expenses you can cut off.
Develop a savings plan
Developing a savings plan is the next essential step to set up a budget. For creating a successful budget you first need to develop a goal to achieve. The goal you set must be achieved at least the minimum amount that is needed for you to survive for three or four months of time. Generally this will take time, but this is considered as the basic strategy you needed to be safe against any possible financial crisis such as serious illness or loss of job.
Track your income and expenses
After creating your budget you need to track your expenses occasionally – if possible daily, weekly, or bi-weekly. Keeping track of your expenses will help you to stay in line with your budget. You will also be well aware of your money and can save your money by avoiding unnecessary expenses.
Revisit the budget often
It will not work well if you create a budget and not checking it periodically. You need to revisit your budget frequently to check whether you stay in line with your budget. Check whether you budget is working well as you planned. If not, check what are the additional expenses had paid.
Though you feel it takes time to create a successful budget, remember it is the first step for creating a balance on your income and expenses. By knowing what you earn and what you spend you can cut off your unwanted expenses and save money. By setting up a budget and keeping track of all your income and expense you can ensure financial stability.