Are you trying to get more organized with your home finances? Here are some great tips to help you plan your yearly home budget.
4 Tips to Help You Plan Your Yearly Home Budget
Budgeting help gives people a feeling of control over their money, among other benefits. And although it’s a simple process, it’s not easy, more so for people who are creating it for the first time. The good thing is that this article discusses tips to help you plan your annual home budget.
1. Know How Much You Earn
The first step in planning a yearly home budget is to know the income. Planning without having the correct income figure can be hectic. If the budget planner is under a monthly salary, they need to multiply their monthly net income by 12 to get the yearly income. If paid weekly or bi-weekly, they need to estimate their annual earnings by multiplying the income by 52 or 26 weeks. There are some situations where the budget planner is not in formal employment, but rather self-employed. In this case, the planner can calculate what they usually earn from the business, adding what they made (per year) in the past three years and dividing it by three. Budget planners should also consider other sources of income like child support, alimony, dividend earnings, disability pension, or social security.
2. Determine Your Expenses
After knowing the income, let’s move to how that income is spent. Calculating expenses is crucial in letting people know where they spend large chunks of their income. Costs or expenses are divided into:
Fixed expenses are expenditures that are relatively constant from month to month. They often mirror needs more than wants. Fixed expenses may include:
- Utility bills
- Health insurance
- Mortgage or rent
Variable expenses differ from month to month, depending on the need. Variable expenses may include gasoline, groceries, car payments and insurance, or medications.
These expenses are optional, reflect wants, and are mainly based on the budget planner’s spending habits, lifestyle, and choices. It is pretty easy to adjust and re-allocate discretionary expenses than fixed expenses. Discretionary expenses may include:
- Travel or vacations
When determining expenses, remember to categorize them as needs or wants. It would be easier to know what to remove or add this way. It’s also important to factor in debt expenses and anticipated costs like home repair or car maintenance.
3. Set Saving Goals
Saving should be part of budget planning. Ideally, financial planners advise people to have savings that cover six months’ income. This can be sufficient compensation in case of an emergency or job loss. Apart from saving for a rainy day, budgeters can save for projects they want to undertake in the future, like buying a house, car, or starting a company. People can save on different financial products depending on their goals. Financial products are investments and securities that offer buyers and sellers short-term or long-term gains. Saving accounts, insurance, and investments like buying shares are among the many saving options that financial products provide. Therefore, comparing financial products is crucial before deciding on the way forward. This way, people will know what they want, what they hope to benefit from, and rules, terms, and conditions.
4. Compare Income Versus Expenses
When budgeting, the goal is to ensure the expenses don’t exceed income. If that’s the case, it means more money is moving out than is getting in. This calls for adjustments. Making adjustments doesn’t mean creating a new budget afresh. It could be looking into the budget and analyzing it, then cutting off unnecessary things, for example, eating out less frequently, spending less on traveling and vacations, or canceling gym membership. Downsizing to a cheaper house or shopping around for more affordable groceries are other great ways of cutting back on expenses. Adjustments could sometimes mean increasing sources of income to take care of the surplus expenditure. Starting a side hustle like baking after work, being a freelance writer, or being an Amazon affiliate can help increase income. Debt can be overwhelming and may sometimes lead to expenses surpassing income. If that is the case, there’ll be a need to consult a credit counselor. Debt counselors may provide individualized recommendations on cutting costs and increasing income or debt-relief programs. On the other hand, if the income is more than the expenses, the budgeter lives within their means. This is a good sign as surplus is left, which can be used in other projects. Planning a budget alone without sticking to it can’t work. Neither will it bring more money. But if followed to the latter, a budget can make significant changes in people’s finances, which can positively affect their physical and emotional health.