Setting a household budget is all about setting financial priorities and making sound decisions about spending. If you are trying to save for a vacation or retirement, or just looking for a way to free up more cash, setting a budget is the way to do it.
To set a budget for your household, the first to do is to calculate total monthly income. When you think about income, only consider regular, reliable sources of income such as your job, child support, or alimony. Since you can’t be certain of variable sources of income from one month to the next, it is best not to include them.
Next, determine the total amount of monthly expenses. When you set a budget for your household, you must take into account the financial needs of each household member. Consider the expenses that are necessary to for survival like rent, utilities, transportation, and food as well as fees for the children’s school and extra-curricular activities. Write down each of these expenses and the associated monthly cost. Then total them up.
Subtract the total household expenses from the total income to determine how much money will be left over after all the bills have been paid. If the result is a positive number, that’s good. You have enough room to save money or take a vacation. If your result was a negative number, don’t fret, there may be room for adjustment.
Take a look at your itemized list of expenses and decide if each item is a required or optional expense. For each of the items you listed, ask yourself, “What will happen if this expense is not paid?” Many of the items will have an obvious answer. If you don’t pay your rent or mortgage, you will likely be evicted or foreclosed. If you don’t pay your utility bill, the service will be disconnected. Denote all your required expenses.
Your list of expenses might include some luxuries that are disguised as a necessary expense. Do you have cable television? This is an optional expense that can be eliminated free up cash in your budget. Cutting off your cable television can save hundreds of dollars a year. You can make tradeoffs so that you don’t completely cut out home entertainment. For example, if you cancel your cable television, you can sign up for an online movie rental service. You’d be surprised at all the little ways you can free up more cash in your budget through a close examination of your spending.