It can be difficult to know how best to go about budgeting if you’ve never done it before. Many people find that by the time they realize they could have used some budgeting, it’s too late. Hopefully, you’ve decided to start assessing your budgeting before it’s too late. Either way, you should probably start budgeting effectively now to help you out with stretching your dollars as far as they can go. To assess a budget, you ought to compile a list of all of your income sources, expenses, and planned purchases. You ought to gather all of the different financial statements available to make sure that you have a completely accurate budget. Once you have figured out the amount of income coming in, you can then calculate what you can afford to spend on various needs and wants in your and/or your family’s lives.
Finding Income Sources
The first step is to figure out all income sources. For many families, this will consist of just a simple paycheck stub or bank statement. Individuals who are self-employed or have investment income will need to calculate that as well.
Figuring out household expenses can be difficult. Many households have unforeseen expenses or purchases. To begin, individuals should write down set expenses like car payments, mortgage bills, insurance costs, groceries, savings plans and utilities. Over the course of one to three months, they should track each item that they purchase carefully. This will help them to figure out the average cost of unplanned expenses like restaurant dinners, household maintenance and side purchases.
Fixed and Variable Expenses
Fixed expenses are typically set and a required cost each month. These expenses include mortgage payments and utility costs. For most families, fixed expenses will encompass the majority of costs each month. Variable expenses can change each month and include entertainment, groceries and gifts. Since these expenses can change, families will have to be alert and carefully track them.
If the actual expenses are higher than the household’s income, individuals will have to make adjustments. Variable expenses should be shaved or eliminated in order to get expenses in line. When the budget is still off balance, individuals will have to review if they can truly cover the cost of their mortgage or car payment. In extreme circumstances, the household may be forced to downsize.
Review and Calculate
A household’s spending is never static. It changes over time, so families have to make sure that they continue to track their budget whether they use cash, credit or personal checks. If the total expenses end up being higher than expected, the household may have to review their spending or find a source of side income.
By calculating the household’s budget, individuals can figure out if they can purchase a large ticket item like a car, house or college tuition. Regular additions to saving plans and reduced spending can ensure that the family can achieve their financial goals. Once the budget is in line, the household will.
Post contributed by Rianne Hunter. Rianne Hunter is a wife, mother of three, and an independent blogger who writes for a broad range of topics and types of publishers. Email her at riannehunter at gmail.com