Creating a household budget can be hard.
From work, to school, friends, play and more; families are busy!
Given how preoccupied we get, most are unaware of their financial situation. However, this unawareness can lead to even more issues such as overspending, crippling debt and poor credit scores.
To keep your family from suffering the consequences, we’ve outlined 5 tips for creating a household budget.
1. Determine Net Income
The first step to creating a household budget is to determine your net income. It is important to keep in mind that the net income will be any income earned after deductions. Meaning, any contributions to Social Security, 401(k), employment or health benefits needs to be taken into consideration.
Otherwise, simply relying on the gross salary number can skew your budget by inflating the amount earned each pay period.
If you are not on salary (working for commission or on shifts), you’ll need to find the average earned each month. This can be done by reviewing the previous years income and dividing it by 12.
2. Track Expenses
To create a balanced budget, you’ll need to know where your family’s money is going. Most banks automatically categorize spending habits and can be viewed from online accounts and mobile apps.
However, if you’re spending habits are not automatically tracked, simply review a few month’s worth of transaction data manually.
Track expenses into: essentials and non-essentials. Essentials would be things that you must purchase throughout the month (such as groceries, transportation, medication, etc.) Whereas, non-essentials would be things that you could possibly do without (such as entertainment, restaurants, take-out, etc.)
3. Set Clear Goals
Once you’ve established how much money the household has coming in vs. what is being spent you should set yourself financial goals. This can be anything: from spending less on take out, contributing more to your retirement plant, or saving up for a vacation.
Regardless of what you want to achieve, clearly define what you want. Otherwise, without a clear direction, you won’t know what to do to get yourself there.
It is also recommended to speak with a financial professional, like us here at A.P. Accounting and Tax Services, where an expert can provide an objective view and specialized advice on getting there.
4. Reduce All Household Debt
If your household is carrying any debt, you should make it a priority to pay it off as soon as possible. Debt can be crippling for households, especially when families are unaware of exactly how much they have.
Plus, debt often comes with high interest rates, hidden fees and costly fines that contribute to an inflated balance. Without a consistent payment plan to reduce the household debt, you might just be paying off the interest fees without actually touching the final balance.
Rather than struggle to manage these payments each month, make it a priority to pay off the balance. In turn, leaving you with more disposable income and financial freedom in the future.
5. Check in Regularly
To maintain a balanced budget, be sure to check in regularly throughout the month. Tracking how much you’ve spent allows you to gauge where you are financially. Families should try to check in at least once a month by reviewing their accounts and allocating accordingly depending on where they are.
Overall, family budgeting can be hard! However, with the right practice and planning it can be done. If you need help establishing a household budget, or are looking for some personalized advice, get in touch with a member of our team today for help.
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