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Finance -
Personal Finance
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The credit crunch has had a major impact upon the economy of the world. Jobs are being lost, wage bills slashed and profits turned into deficits. For the first time in years many households are starting to realize that they can't rely on loans and credit cards to keep them going, that they are in fact going to have to budget.
The problem is budgeting is a skill, and just like any skill it has to be learnt. Recent years of economic prosperity has meant that many individuals have never needed to create a budget and are rather lost now that such a skill is needed.
Thankfully we are here to help, follow our guide for creating a household budget and make sure that all your finances are in order.
How to create a household budget
Start with the essential bills
Many people make the mistake of trying to start their household budget off with their income. Don't. The most important things are the bills that can not be changed or removed. Look at old bank statements and bills to understand what you need to pay. No matter what happens bills such as mortgages, gas, electric, water bills etc need to be paid, so add up what you are spending on them and make a note of it.
The reason that you only work out your income afterwards is it is important that you look at your essential bills before comparing them against your income, too many people just start being haphazard with bills thinking their income will cover everything – they need to ensure that they consider them as a separate entity.
Then work out your income
What is the total income of the household, is, after tax, including all wage earners, side jobs, other income streams such as shares etc. Make a note of this on your budget as well. It is important that you know EXACTLY what money is coming into the household.
Subtract the essential bills from this amount, what you have left is what is available for the following parts of the budget.
Food bills
The food bill is usually one of the areas that the most money can be cut. Stop buying in take aways or eating out at restaurants as often and you will save huge amounts of money. Further savings can be made by not buying brand name goods and by planning meals in advance so you only buy exactly what you need – rather than wasting money on food that will go off.
What other things you are spending money on
The fact is that a huge amount of any households budget ends up getting spent on impulse purchases and little items such as a daily latte. Write down exactly what you are spending every day and you will see what I mean. A chocolate bar here, a packet of biscuits there all add up over the course of a year – never mind bigger impulse buys.
So work out what it is that you are spending money on and then look at ways of cutting them out.
What you have then should be a budget stating exactly what you have coming in, the essentials you have going out and what is left over as spending money, savings etc. Manage this wisely and you won't find yourself in financial difficulty.
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