People with high incomes usually believe that they don’t need a household budget, but let’s make this thing very clear: it is just a myth.
If you are facing a money crisis even with a good income, you are probably spending more than you earn. Now is your time to create a household budget and solve your money problem, but how? And what exactly is a household budget in the first place?
Well, that’s why we are here! In this write-up, we will discuss how to create an ultimate budget plan to keep a track of your spending.
A household budget is a spending plan that helps you to keep an eye on your money and where should it go each month. A household budget includes your monthly income and money you have from any other source, freelancing, for example.
A budget helps you to pay for your living expenses, manage your debts, and prepare yourself for unexpected bills or emergencies. The best thing about a budget is you can change it anytime. If you ever run into difficulties, change your spending and you’re good to go!
There's no hard and fast rule or magic formula for building a budget. All you have to do is to get the most out of your money. Here is the step-by-step process of creating a good household budget.
First, calculate your net income, as it is the foundation of an effective budget. Subtract your expenses from your monthly income; you will get your exact net income. Write the number aside, even if it’s negative.
If you are a freelancer, self-employed, or contractor, keep notes of your paychecks or contracts to manage irregular income.
Now you know how much money you have, the very next step that you need to take is to figure out where the money is going. Keeping a track of your expenses will help you determine where to spend and where to save.
Start by listing down your fixed expenses, such as monthly bills, mortgage or rent, utilities, etc. Now list your variable expenses- those that vary from month to month. These include groceries, medical, gas, fun, or entertainment. This is where you can save your money and cut back on your unnecessary expenses.
You can keep your track record of daily spending with anything that you find convenient- a pen or paper, journal, notes app on your smartphone, budgeting spreadsheet, or any template you find on the internet.
Before proceeding further, it is crucial to set your short and long-term financial goals. You might wonder why we need to do this when it’s just a monthly budget. Well, it’s important because these goals help you stick to your budget. For example, it may be easier to cut spending when you know you’re saving money for your wedding and after-wedding things- trips, vacations, etc.
In this step, you need to consider what you’re actually spending and what you want to spend. There is this budgeting rule known as the 50/30/20 rule. It is a budgeting technique that helps you to divide your income into three categories by percentage.
Now you’ve documented your budget plan, you can make adjustments to avoid any overspending. Look towards the list of your “wants” as the first area for cuts. For example, you can skip a lavish dinner date in favor of a candlelight dinner at home.
Always remember, little savings can do a lot. Make one adjustment today; you will be surprised to see how much extra money you’ve accumulated.
Now you’re all set with your budget plan, it’s important to review it regularly. You spend your money daily, so make sure you’re staying on track. We recommend you develop a habit of regularly checking your budget. If your expenses change, change your plan accordingly.
We know everybody has a different lifestyle and income, but having a household budget is something we all need. Even if you’re earning a handsome amount of money, it’s better to plan your spending because we never know when the crisis hit us!
The above-discussed budget plan is the best guide, you’ll have ever found. Now create your ultimate budget plan and enjoy your savings.
