If you expect to be able to save some of your current income for your future, a household budget is necessary. You need to know where the money is coming from and where it goes when it leaves your wallet or bank in order to manage it effectively.

To get started, you’ll need a pen, calculator and paper – and/or a spreadsheet program. Gather all of your pay stubs, income records, monthly bill statements, check register or online bank statements if you have them, and statements for retirement or other investment accounts.

Step One: Determine your income. If you are on salary this will be easy, as you earn the same amount each month. It can be more complicated if you are self-employed, work on commission or have variable income for other reasons. Do your best to get an accurate monthly average of income earned, and remember to include tips, bonuses, child support, alimony or any other type of income you receive regularly.

Step Two: Determine your monthly expenses. List everything you pay. If there are bills that fluctuate, like utilities or food expenses, for example, just find the average by totaling a year’s worth of that expense and dividing by 12 months.

Step Three: Take a deep breath and check your totals! Is your income less than your expenses? No wonder you haven’t been saving! Go through your monthly expenses list and mark items that can be eliminated from your expenses (coffee shops, gym memberships and/or unnecessary subscriptions, etc). While you’re at it, you can also mark expenses that could be reduced (food expenses can be reduced more than you think with use of coupons, buying items on sale, eating out less, etc). Once you’ve tipped the scales so your income total is greater than your expense total, you can determine how much money to save. Pick a weekly or monthly savings amount that also allows for a little cash buffer in case you have some unexpected need for more cash than you included in the budget.

Step Four: Post the budget on your refrigerator or another area that you will see it every day. Refer to it often to help stick to the budget and grow your savings. As items are paid off, you can increase the amount you are saving.

Tags: budgeting, household budget, saving money

This entry was posted on Tuesday, December 30th, 2008 at 8:21 am and is filed under tips. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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