The concept behind the word budget may sound easy to understand, but applying it in real life is a big challenge. However, despite being a challenge, the fact that budgeting is an essential money management skill is undeniable, especially when it comes to household income.
The limited incomes that flow into a household monthly can quickly be drained by the utility, food, transportation, and miscellaneous expenses. This is why it is essential to be strategic in spending hard-earned money to achieve financial stability. That is where budgeting comes in.
Unfortunately, not many people know how to budget for their household money due to a lack of financial management education. But, worry not, here are easy steps you can do to be better in budgeting your family’s money:
Create Realistic Goals
One important rule in budgeting is to set a realistic goal. This goal will motivate you to stick to your budget. You can have two types of goals: long-term and short-term.
A long-term goal could be buying a family house or paying for your children’s education. It could also be to start a business. Long-term financial goals take a lot of self-control when it comes to spending, and you should be strategic in the allocation of your budget.
On the other hand, a short-term goal is something that you want to achieve in a period of 6 months to a year. An example of a short-term goal is saving for a vacation trip or buy a new TV or sofa.
Identify Your Income and Expenses
Ever hear of the saying “ do not spend beyond your means”? Well, that saying is the fundamental concept of budgeting. In order to avoid spending beyond your means, you must compute your total income and expenses.
To do this, add all the money that comes into your households, such as salaries or business profits. Then subtract all your monthly expenses such as a mortgage, utility bills, tuition fees, transportation cost, etc.
Doing this will help you see your actual financial standing. If you know that you have more expenses than incoming monthly income, you might want to consider cutting down on some utilities to lower its cost.
Set Your Priorities
Once you know where you stand financially and you have created your long-term and short-term goals, the next thing that you have to do is to set your priorities. First, separate your wants from your needs. Then create a hierarchy of needs.
Allocate Your Money
This is the toughest part of budgeting, but since you have already made a priority for your needs, it can be a lot easier. Based on your incoming income, allocate money towards the expenses that you need. If you have money left, put it into a savings account for your short-term and long-term goal.
When allocating your money, it is also essential to put a portion for contingency and emergency funds. This will protect you from unforeseen expenses or events such as accidents. It is always a good idea to have liquid money that you can access when the situation calls for it.
Budgeting will never be easy. It is a challenge that requires tremendous self-control and will. However, if you do become successful in it, you will be rewarded with your short-term and long-term financial goals.
In budgeting, you may mess up along the way but do not be disheartened because that happens all the time to everybody. The important thing is that you learn from financial mistakes and make the necessary adjustments to manage your family’s money more efficiently.