There is no big secret to making a household budget, and no matter who you’re talking to, there are basic things everyone needs to do to make it a success. There can be some variations on the budget and words used to describe it, but when you come down to it, it’s pretty much what I’ve listed below.

It’s also what I’ve encouraged people to do that came to me in the past when I was a financial adviser and they wanted to learn the best way to control their spending and manage their finances.

1.

The first step to take is to find out what the monthly average you pay out for all your liabilities. This includes your regular payments you make like electricity, cable, etc. Again, the purpose is to get an actual monthly average and not try to guess what you must pay out monthly.

2.

Next, you want to get a hold on your monthly income. So simply write down all places you draw an income from and what it is. You want to find out if you even have enough to meet your obligations or you need to get another source of income.

3.

Now make a list of your fixed monthly expenses and your estimated expenses. For example, do you service your vehicles on a quarterly basis. Do you expect to have to pay out some money for household repairs sometime soon. Do you set aside a certain amount for potential problems that may arise.

Here you want to at least a some money set aside for these types of emergencies so you don’t get caught off guard and it messes up your budget.

4.

Be sure to list your fixed expenses and variable expenses into different categories so you understand them and know what to expect. Here is where many people get frustrated and can quit because it was easy enough to list fixed expenses, but forgetting to take into account variable expenses can crush you when they unexpectedly arise. Don’t be caught off guard with this.

5.

Add up the amount of income you take in each month along with the fixed and variable expenses. This gives you the actual conditions of your financial health and will tell you the story of what needs to be done to take care of it.

6.

So far this has all been easy. But now you must take the practical steps of using the numbers you’ve discovered to make adjustments to how you’re going to go forward. This isn’t the fun part of a budget, but it is the most necessary part. No pain no gain. Let’s face it, all of us who have too much debt have brought that upon ourselves. Now we must take it upon ourselves to deal with it.

Again, at first this can be a little discouraging, but once you implement it you will get the feeling of being empowered, and instead of feeling you’re always being acted upon, you’re now taking action to manage your finances and your life.

7.

Immediately start to put money away for the purpose of paying down your debt. The credit card with the highest interest rate should be your first target.

Having said that though, if you need a psychological boost, take the credit card with the lowest amount and start paying that off, as it gives you a sense of accomplishment and you can see very quickly your debt load starting to disappear.

8.

Once you begin this, then simply go over your budget on a monthly basis as things begin to change financially for you. As you do, make whatever adjustments you need to make and fix anything that may be leaking through.
 
Just keep repeating this process until you pay things down.

If you’re married or have joint debt with someone else, be sure to sit down with them and get on the same page. Obviously this won’t work with two people going in opposite directions.
 
Finally, use a software program so you can enter all your data and see the results easily. It helps you do get into the budgeting frame of mind and can give you encouragement as you check your progress from month to month.

Remember that the entire purpose of this is to free up money so you have more to set aside for building wealth. Forget that and the budget begins to make you think you’re being cheated, just like a diet can when you see that big piece of chocolate cake you want to get and take a big bite out of.

Just keep the idea or vision in your head of the day you’re free from debt and have a lot of money to invest, build wealth, and spend on the things you need without going into debt.

Tags: budgeting, saving money

This entry was posted on Monday, January 25th, 2010 at 7:00 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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