Any financial planner will tell you that a household budget is fundamental to saving money and creating a financially secure life. But with all of your family's expenses - groceries, bills, gas, wardrobe, etc. - it's hard to know where to begin. Here are some tips from the Financial Planners Association to help you get your household finances in order:
Don't call it a budget. Financial planners often prefer other descriptions, such as a "savings and spending plan" or "cash-flow management." The word "budget" connotes making unwanted sacrifices, while a "savings and spending plan" focuses on being in control of your spending and making informed choices for directing your money to where you most want it to go.
Budgeting is for everyone. Planners report putting even their most well-off clients on spending plans because they, too, struggle to save adequately and control spending.
Spend less than you earn. Building wealth and financial security is based on the simple premise that you spend less than you earn. This is difficult to do if you don't know what you're earning and where you're spending it, which is the purpose of a spending plan.
Develop a comprehensive financial plan. It will be difficult to create a useful budget if you don't have a greater financial plan. You will be more motivated to stick to a budget after you've developed a financial plan based on your family's overall monetary goals. Your spending plan should support the goals you decide on.
Pick a method that fits you. Some people benefit most from a detailed spending plan that tracks every penny. Others do better on a broader scale, setting aside funds for major expenditures and letting the little stuff fall where it may. Decide which approach is better for you.
Take care of priorities first. Regardless of which approach you take to budgeting, be sure your priorities are paid first. This will reduce the amount of money you could potentially waste on less substantial expenses.
Track your spending. Even if you prefer a more general approach to budgeting, you should consider tracking all of your spending closely for several months, so as to get an idea of where your money is going. Surprisingly, many households don't have a clue where their money goes. Tracking your spending will help you identify funds you may be able to afford to put into savings.
Track the cash. Many times, the largest expense category in a family's budget is "miscellaneous." This is why financial planners recommend carefully tracking the cash you spend for at least a month or two. You might be surprised at how much money you actually spend this way.
Practice with short-term goals. Budgeting for a short-term modest-expense goal is considered good practice by financial planners who believe it can help people to work toward more expensive long-term goals. The signs of progress you begin to notice will motivate you to continue.
Spend from sub-accounts. It is sometimes helpful to establish savings sub-accounts, such as a vacation account, a car account, an education account, or a retirement account. You're less likely to overspend if you have several sub-accounts, as opposed to one large account.
Automate. If you can, have your regular monthly expenses, like your mortgage and your car payment, paid automatically from your checking account. You already know that money is coming out, and it is one less thing to worry about come time to pay your bills.
It's ok to cheat ... sometimes! Let yourself spend a little more than you'd planned every once in awhile. A small amount of splurging here and there won't ruin your budget, so don't feel guilty.
Look for signs. Regardless of how detailed or broad you are with your spending plan, there's a simple way to make sure it's working. Ask yourself if you are increasing savings and decreasing debt at a good pace. If you are dipping into your savings and investment accounts to meet your needs, consider revising your plan.
Check in now and then. Like all aspects of your financial life, you should check in with your spending plan every so often to see if it's still meeting your needs. Major changes in your life may require you to make some adjustments.
