Making a financial budget for your home may sound daunting but it really isn't. Patience and realistic estimates are all you need to come up with the perfect spending plan, and here's a quick walk-through of the process.
1. Determine your disposable income
Calculate your after-tax income (Salary, bonus, investment income, and money you get from your bank account, etc.).
2. Calculate your projected and actual expenses
- Spending on running the home (groceries, car fuel, rent, utility bills, repair and maintenance, etc.)
- Spending on entertainment (eating out, movies, television, internet, vacations, hobbies, etc.)
- Health and education (any regular medical bills, school and college tuition fees, books, etc.)
- Debt obligations (paying down old debts from credit cards or loans, etc.)
- Personal use items (clothes, bedding, visits to hair salons, shoes, etc.)
3. Calculate your savings
- Money set aside in bank for future use
- Investments in stock or bond market
4. Analysis time!
Are you in trouble or are you good? Did you spend more than you earned? How can you prevent that next month? Can you cut down your 'wants' and focus more on the 'needs'? How can you achieve world peace? The last question is probably not that relevant.
That's about it, except for the following variations and tips related to your financial budgeting process.
1. Save first. Spend later.
If it were up to me, Step 3 would come right after Step 1 (reach your savings target first and feel free to spend the rest) because it ensures you save something every month and helps control wasteful spending.
2. No hard rules.
Let the creative you come out and make your own sub-headings. You could consider 'eating out' a necessity or cover education and car expenses under an entirely new heading. It's really up to you and it helps to be a little creative. Why not use the following fun headings?
- To run my awesome home in an awesome manner... instead of, 'Spending on running the home'.
- To keep myself from losing my mind... instead of, 'Spending on entertainment'.
- An apple a day doesn't keep the doctor away. I still need to spend on health... instead of simply, 'Health and education'.
- I'm part of a world that runs on debt... instead of, 'Debt obligations'
- My own life matters too, you know... instead of 'Personal use items'
3. What's the point?
Do you have a goal in mind to motivate you during the family budget exercise? Do you wish to save up for a new pair of stylish sun glasses or a vacation to Brazil? It can get tiresome recording everything so keep reminding yourself of the big picture.
4. Involve the family
Get your kids to create their own monthly budgets and share them with the family. This will go a long way in instilling good financial discipline.
5. Give priority to pockey-friendly items
If you ever need to make a big-ticket expense, like a renovation or lavish dinner party, go the budget-friendly route. Also try think about your opportunity costs and whether it's wise to spend on something luxurious instead of something that will simply get the job done.