The best way to save money and manage household finances is to establish a budget so that income and expenses can be clearly monitored. A budget ensures that bills are paid on time, household debts are cleared and savings goals are set and achieved.
Even simple home budgeting solutions can help to bring order to chaotic finances.
Step 1 - Household Budget Preparation
Collect all receipts in a box for one month. A shoebox is ideal. If no receipt is issued (for a cup of coffee for example), note the date, item and amount on a piece of paper and include with the other receipts. At the end of the month, divide the receipts into appropriate groups (groceries, books/magazines, CDs/DVDs, drink/snacks, outings/entertainment etc).
List regular expenses, including all weekly, monthly, quarterly and yearly payments. These will include bills such as telephone, gas/electricity/water, rent, mortgage, rates, insurance, school fees, etc.
Select an appropriate budget format. Many financial institutions supply budget tools on their websites, however details must often be entered online. Some websites offer downloadable forms for free and accounting home software packages such as Quicken and others have personal budgeting software included.
It is easy to draw up a budget template, especially with access to spreadsheet software. It is easiest to work on a monthly cost basis, so all income and expenses should be multiplied or divided to fit this calculation. A weekly expense should be multiplied by 52 (weeks in the year) then divided by 12 (months of the year) to get a monthly equivalent figure. A quarterly bill should be divided by 3 to get a monthly amount etc.
Step 2 - Assessment of Household Budget Items
Income and expense totals can now be compared. Assess where changes need to be made in spending habits to create a workable budget that will balance and achieve any savings or debt repayment goals.
Divide current expenses into categories:
NECESSITIES (utilities, rent/mortgage, insurance) – These bills are a fact of life and can’t be avoided. Shop around to get best deal to limit these expenses as much as possible.
ADAPTABLE - haircuts, groceries, entertainment and activities. These are necessary expenses that can be modified more easily to fit in with budget restrictions. Groceries are necessary, but there are less expensive alternatives for most items and some stores have lower prices than others. Allowances need to be made for children’s sporting/extracurricular activities, but it is sometimes necessary to limit the number of activities undertaken.
EXPENDABLE – Doing without some luxury items in the short term can have a big impact on balancing a budget, especially if aiming to pay off debts and/or achieve savings goals. Limit these purchases to ensure long-term financial stability. Expensive clothing and jewellery, regular meals at expensive restaurants, magazine subscriptions, pay TV and regular CD and DVD purchases can all be excluded from the budget or limited to an occasional ‘treat’.
Step 3 - Implementation of the Household Budget
Draw up a new budget form showing your planned allowances for each category. Be practical. A previous grocery bill of $250/week, is unlikely to be reduced to $100/week overnight. Ensure that there is an amount allocated to saving and/or paying off debt. To provide motivation to stick with the new budget, have a specific short-term (reducing the weekly grocery bill by 10%) and long-term (such as paying off the credit card debt within 18 months) goal.
Reassess the budget after one month, making any adjustments that are necessary. Assess again after three months.
Money management and financial planning come easily to some and not to others. If preparing a budget seems too daunting a task to tackle alone, ask for help from a more financially organized friend or family member. There are a variety of helpful organizations and businesses that can also assist with bringing order to disorganized finances.
