When managing your personal and/or family house hold budget, you need to use proper tools and make calculated calculations, including changing factors that may or may not come into play. Keeping track of your money can be a daunting task. There is no right or wrong way of going about managing your money and your budget. Some people use paid softwares, others like to keep spread sheets. Again, though there are tools that make it easier for you to manage your budget, it is completely up to you to decide/choose how you want to go about managing your budget.
The first step:
What is your Net Income? knowing your exact net income is the first key aspect when you begin managing your budget and money. To understand your true net income you must literally take into account every dollar you have coming in. That being said, please take into account that you must calculate your deductions for taxes, 401(k), social security, and other savings you may have in place on your net income. The amount that you receive after all these deductibles is called your Net Income.
The second step:
Understanding where our money is going. This is a big one. Most people do not track where their money is going at all! From your every day Starbucks coffee, to your gym membership. You need to know where every dollar is going. The easiest way to keep track of where your money is going is to categorize your spending into categories that make sense to you.
When starting to organize your budget, you would want to start with Your Fixed Expenses. These are the expenses that you must pay every month. This includes, but is not limited to: rent, mortgage, car payments, utility payments, health insurance payments. These payments are harder to cut back on, however, it is important you know what these expenses are and where your money is going. This is one of the key components when managing your budget.
Your Variable Expenses. These are the expenses that change from month to month. This includes, but is not limited to: Gas payments, your gym membership, entertainment, restaurants, hobbies, shopping and other payments that you have a lot more control over than your fixed payments. To get a better understanding about these type of payments, start with your bank and credit card statements to see where your spending is.
Your third step:
Understanding where you stand financially. Use your list that contains your fixed and variable expenses to make sense of your financial situation. This list will help you set your goal and see where you stand financially. Try to better understand where you need to save more, and what expenses you can make adjust with. Many people find that there are multiple expenses they keep paying for, which they no longer have any use for. Try to take an extra look at your expenses and evaluate your variable expenses. Often times, we find room for savings in unexpected places.
Your fourth step:
Adjusting your lifestyle and your habits. After you have adjusted your balance sheet and expenses, you should have a pretty good idea about where you stand financially and where your money is going. At this moment, you can figure out how much money is left or not and where you should begin savings.
If you have to cut back on your spending and change your life style, do it gradually. No one likes to cut back on their life style. This requires giving up on things you are used to doing and are, for the most part, part of your daily, weekly or monthly routine. When you make these adjustments, see how much money is left at the end of the month.
Ideas on where you can cut back on spending:
These are some basic ideas, of course, these are things that change individually.
The sixth step:
Keeping track of your new budget. After you have done all the hard work of budgeting and managing your money, keeping track and sticking to plan can be rather difficult. It is easy to jump back into old routines and pick up hold habits. Make sure you set yourself up with alerts, perhaps on your phone, to check in weekly with your budget schedule.