Budgeting is a tool that’s very important to help you manage your finances, build wealth, and keep debt at bay. Whether you’re the head of your household or you have combined your income with a spouse, taking control of the finances to track what comes in and what goes out will help you to live your best life this year against all odds.
Why You Need To Keep A Household Budget
We work hard to earn a living. We should make sure we spend the money we bring home wisely. That’s where a household budget comes in. It’s a good tool to see at a glance what we have coming in, what’s going out (and what that money is paying for), and if there’s anything left at the end of the month to put into savings and investments.
Before we dive into exactly what a budget can do for us, let’s consider for a minute what will happen if we’re not tracking income and expenses. We may end up spending more than we’re making in a given month (or two, or three). Over time that can put us into some pretty hot water financially. We may also spend a lot more than we’d like to believe on things like eating out, spa days or new clothes.
Having a budget gives us more control over where we want to really spend our hard-earned cash. Maybe that’s dinner and a movie, but maybe it isn’t. Wouldn’t it be nice to have an actual choice?
3 Reasons to Start a Household Budget
A budget simply tracks your money. You record where the money comes from each month (your income sources) and then write out everything you spend it on, starting with your regular monthly bills like mortgage or rent, car payments, utility bills, etc. What’s left after all the bills are paid is your discretionary income.
Here are three reasons you may want to start a household budget.
- Identify Things You Waste Money On
Having it all in front of you in black and white helps you identify things you’re wasting your money on.
It makes you reconsider if you really want to spend well over $100 a month on various streaming subscriptions or $150 on your large cell phone plan. Or how about that yearly magazine subscription to something you no longer read? Go through your expenses and reevaluate if this is REALLY how you want to spend your paycheck.
- Allows You To Be Proactive About Savings
Saving money without a budget is hard. We go in with the best of intentions at the beginning of the month, but somehow there isn’t anything left at the end of the month.
A budget gives you a chance to be a bit more proactive. Set aside some money for savings at the beginning of the month, even if it’s just $20. Put it in the budget as a regular expense, just like you do with your other urgent bills. If you need to, open a separate saving account so you’re not tempted to spend it.
- A Budget Ensures You’re Not Spending More Than You’re Making
Most importantly, your budget will keep you on track and help you make sure you’re not spending more than you’re making. And I don’t have to tell you that that’s pretty important for your financial wellbeing.
A budget is only successful if there is a commitment to live within the budget and resist impulse buying and anything that may cause voluntary over expenditure. The exception to this rule is a true emergency, which although not budgeted is covered by the savings you put in place.
How to Begin Creating Your 2021 Household Budget
One of the most important aspects of budgeting is the “why.” Everyone needs to know exactly why you are creating a budget and exactly what you hope to accomplish with your budget. These goals will guide other important decisions in your family’s budget. Don’t skip this step!
Some goals you may have for your household budget may include paying down debt, paying off your house, paying cash for a car, cash-flowing the birth of your children, saving for college, saving more for retirement, and giving more to your favorite causes.
If you have kids, make sure you take the time to talk over these goals with them now. You may not have ever talked about money before, but it is important because you will need their help over the next few months as you work your budget. They may have to realize that there are times they can’t have everything they want, and keeping those budgets and goals in mind as a family can help everyone to learn the value of money.
Now it’s time to get out a budget binder or a clean excel sheet. Start recording everything you spend and everything you earn and take note of the patterns over time. Take control of your financial future to secure yourself and your family in unprecedented times.