One of the biggest problems in a household is money issues. When there are money issues in a household usually it affects everything in the relationship and stress levels are at an all time high. We all work so hard each and every day to bring home money to pay our bills, but the sad thing is that most people don’t know how to budget and spend their earnings in the best way possible. Now I don’t know why schools don’t teach this, but they absolutely should! So instead we rely on learning from our parents. However, if our parents have no clue how to budget, then we obviously are not going to learn best ways from them.
So let’s just start out with this very basically...
Now remember, when budgeting you are using your Net Pay, which is the amount you actually receive after taxes are taken. The amount you are paid before taxes are taken is called your Gross Pay.
So total up a month’s worth of your Net Pay. This is the amount of money you will use to set your budget. If you have more than one income in your home, add all the income Net Pays up.
Now a rule of thumb is that you should live off of 70% of the money you bring home after taxes, 10% should be given to charity to help those that can’t help themselves, 10% should go to savings, and 10% should be used for debt/ investing.
Now you should take care of the three 10% categories listed above. So, first take 10% of your Net Pay and give it to a charity of your choice. Give to your local food bank, give to a friend/family member that is in need, whatever you do make sure that money is helping someone that can’t help themselves.
Now take 10% of your Net Pay and put it into savings. You need to have an emergency fund. Now this money is NOT to be touched! This money is for if something breaks in your home, heaven forbid you lose an income,etc. But this money is for emergencies only!
Now take the next 10% of your Net Pay and apply that towards any debt that you have. We will discuss how to tackle your debt the best way in another blog post, but for now tackle the smallest balance credit card/loan you have first, then move onto the next. If you don’t have any debts that need to be paid off, this 10% should be used to invest and make yourself more money. This we can discuss at a later time too, but know that investing is not for the faint of heart. The stock market is a very tricky thing you can win and lose, and many lessons will be learned along your journey in investments.
So now onto the remaining 70% of your income. This is the money that you have leftover after the priorities are taken care of. In this 70% you have to pay for your home, utilities, groceries, medical bills, personal products, cars, gasoline, etc. Yep! I am talking everything else, so it may be time to start cutting back and looking for cheaper options or cutting things out completely. This is where the Need vs Wants blog post of mine comes into play, be sure to check that post out, if you have not already.
Now the best way to figure out how much you have been spending on all of these categories in the past is simple...grab a notebook and pen, your last couple months bank statements, and probably a beer or glass of wine, because for most people, including myself; this is gonna be a bit rough to dig into. But this HAS TO BE DONE! The only way you are going to know where your money has been going is to look at it closely.
Now, start making a list of the bills that you pay each month. Make four columns on your paper:
Column 1 - Name of Vendor - Company the Bill is paid to.
Column 2 - Date the bill is due each month
Column 3 - Amount that is paid
Column 4 - Notes
Make a note by each amount so you know if they are recurring bills that happen each month? And note if the payment amounts change each month or are they a set amount?
Go through and write down everything so that you can see where all your money has been going. You may even want to look at your bank statements for the past 6 months to get an even better picture of where your money has been going. It will take a bit of time, but the more months of expenses you look at, the better idea you will have of where your money goes each year.
Now that you can see where your money is going lately, you can start making a specific budget for yourself to follow. On a new sheet of paper, at the top write your Net Pay - 70% available for living expenses amount.
Then start deducting the things you definitely have to pay each month starting with your home and utilities. Continue on with your other necessary bills and keep a running tally to know exactly how much you have left of your money after each category you add to the list.
Now hopefully you don’t run out of money before you cover all your expenses, but if you do it is time to start looking more closely at where you are spending money. What can you get a better deal on? What can you cut out completely? Time to get creative! Then when you have figured out how much you can spend each month on every category of items allowed in your budget, make a good copy of it and then use it each and every month.
Want to make this all a little bit easier? I have actually created a Budget Worksheet in both Excel and PDF versions to help you easily do everything I listed in this post. So if you want a head start on getting your household on a budget, be sure to check those out! These will get you on the right track with your finances!
There is a lot more we can get into as far as deeper budgeting skills, but we will get into those another day. What you learned here, will get you started and getting started with a basic budget is a huge step, because most people won’t do this. You are stepping up and taking hold of your finances, now get going and follow this as best as you can! I am proud of you!
I would love to hear about your experiences with your household budgeting. Where can I help you? . Feel free to share your story with me at Hello@ElizabethLBalmer.com. I look forward to hearing what you tried and what helped get you through the years as far as household finance.
And of course, if you know someone that may benefit from this post about household budgeting, please share this blog with them. I would appreciate you sharing it with others!
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