How many times have you drafted up a household budget and then fallen short of your goals within a few months? If you tend to have a hard time sticking to your budget and are struggling to keep up with your financial responsibilities, it may be time to change your approach. Sitting down and taking a closer look at your spending habits isn’t easy, but it’s a necessary step for taking control of your finances.
Here are five tips for creating a household budget you can actually stick with:
1- Break down your weekly expenses
You might think you already know what you spend your money on and how much you are spending, on average, each week. However, writing it all down for just seven days might shed some light on how much you are actually parting with without even realizing it. Write down every single expenditure for a week to get a more accurate idea of how much your are spending and where your money is going. Alternatively, use a smartphone app like Expensify or the Billguard’s spending tool to track your spending.
2- Create lists
You need three basic lists to organize your budget: Fixed expenses, such as housing costs, average grocery costs, bills, loans, and other necessities; flexible expenses, such as entertainment expenses, deposits to a savings account, and luxury purchases; and income, which includes all sources of income. These lists will give you an idea of what your cash flow looks like from month to month — and will tell you whether your current income level really is enough to support your lifestyle.
3- Set realistic savings goals
Be honest — completely honest — about how much you can save each month and what types of expenses you can do without. Setting goals within the parameters of your budget may not be easy but you need to have a fairly accurate idea of what’s possible and what you are comfortable working with. Are you saving for a vacation? Do you want to contribute more to a savings account over the next few months? Figure out what motivates you and categorize your savings contributions as a monthly expense in your budget.
4- Set debt payoff goals
If you are in a position to pay down debt, be sure to work those payments into your ‘fixed expense’ column. Setting realistic debt payoff goals and then plotting them into your budget will make it easier to keep track of cash flow each month. Create a separate worksheet to track your debt payoff plan so that you can watch that total go down month after month.
5- Don’t be too restrictive
Just like restrictive diets, overly restrictive budgets are doomed to fail because you will feel the ‘pain’ of not spending what you want and can even end up over-spending to compensate. Be realistic about how much money you need for discretionary expenses and little luxuries so you don’t feel like you’re cutting out everything you enjoy. You can even make a discretionary expense column for your budget and work in a realistic amount for those ‘extras’. This will give you a chance to enjoy your money while staying within budget.