how to budget money

If you want to achieve long term financial stability the number one skill you need to master is how to budget money. Many people will break out in a cold sweat when they face the prospect of developing a household budget, but it doesn’t have to be difficult or time consuming and making a realistic budget that you can stick to can literally mean the difference between financial success and failure.

If you choose to you can invest in some software that will allow you to enter all your income and expenses and the program will give you graphs that will show you just where you are financially. If you choose, you can simply get some lined paper and a pencil. The point is, that when it comes to making your budget the most important thing is to just get started.

Here are the steps you need to take to develop a comprehensive household budget:

1. In order for you to figure out how much money you have to spend every month you need to know exactly how much money you have coming into your household every month. The first step is to figure out your household income. This step can be a little more challenging for those people who earn a commission or who get paid hourly and the number of hours they work can vary from one month to the next.

If you fit into one of those categories, all you need to do is take your last several months worth of income and average it out. While not exact, this should give you an accurate idea of just how much money you will have monthly. Also make sure to include any other sources of income such as investment income. Total your income.

2. Step two is to determine exactly what your expenses are every month. This can be tricky since some bills, such as insurance, are often paid quarterly or twice a year. For those types of bills just figure out how much you pay in a year and divide that number by 12, that way you’ll know just how much you have to set aside each month.

To make sure you don’t overlook any expenses you should go back through your credit card statements and checkbook, that is the best way to find out all the things you spend money on on a regular basis. Most people aren’t going to forget to include their utility bills or home loans, the more likely thing is that you may forget to include your dry cleaning bill, or the money you spent on your haircut. Going back over several months of statements can ensure that you’ve included everything. Total your expenses column.

3. The third step is to find out just where you are. Subtract your total expenses from your total income, the number you come up with will give you a very clear idea of where you stand financially. If the number is a positive one, meaning you are spending less than you earn, you’re doing well. You can take that extra money and invest it.

If, on the other hand, the number you come up with is a negative number, meaning you are spending more than you earn, you will need to make some changes… fast. Sooner or later spending more than you earn will catch up with you and could devastate you financially. If you find yourself in this situation look over your expenses to find things that you can cut out completely, like eating out every day, or at least cut down on. You have to make cuts so that you can have a balanced budget where your expenses and your earnings are equal.

Learning how to budget money is a life skill that can help you achieve financial freedom and it’s not hard to do.

Category: Personal Budget