There’s a big difference between managing to control your spending just enough to stay out of unmanageable debt and actually creating – and sticking to – a family budget. One will allow you to keep your head above water, while the other will set you on a path to saving, investing and a more secure future.
Fortunately, creating a family budget is pretty straightforward; in fact, you only need to follow these six simple steps to ensure your finances are in order.
- Calculate your earnings: if your family is supported by a single wage, this is a fairly simple task; but no matter the complexity, you will need to start any good budgeting process knowing what your income is expected to be.
- Tally your fixed expenses: mortgage, car repayments, phone, water, power and insurance are all pretty much unavoidable, so step two is to figure out how much of your income is disappearing every month on these expenses. When calculating, remember to look for less frequent costs like rates or car registration that only occur once or twice a year. During this process, it is wise to review your current arrangements with a view to cutting costs.
- Set aside your savings: once you know how much money you HAVE to spend each month and year, create a savings goal and plan to set aside enough money each pay day to achieve your savings goals. Create both short- and long-term goals to help maintain your enthusiasm for this task.
- Consider your discretionary spending: once you have allocated your fixed expenses and savings goals, you know what is left to spend on everyday items like food and entertainment.
- Reconsider your savings and discretionary spending: at this point, if your spending exceeds your income, you have some difficult decisions to make. Can you afford your savings goals while still maintaining a reasonable standard of living in the short-term? If not, now is the time to decide what you can and can’t afford to live without.
- Stick to your budget: it seems obvious, but it’s worth pointing out that if you don’t stick to your budget everything you’ve done in the previous five steps will be completely wasted.