Friday, May 17, 2013

How to Create a Realistic Budget for the Family

Budgeting sounds boring but it is the best way to take control of your family finances and work towards a savings goal. It takes time to set up a budget and make it work and you will need to spend a couple of months looking at where your money goes and why you seem to have so little. This also helps to take control over the necessary payments and those that you make for special occasions and on a whim. Here are some tips to create a realistic budget for your family.

1. Look Over Previous Statements : Pull out your past bank statements. If you can, pull out the ones from the last year but six months is often enough to make a budget work and see your spending pattern. It is worth using different coloured highlighters to mark all those payments that were a necessity – your rent, insurances and utility bills – and those that were for a special occasion, on a whim or due to an emergency. It makes it easier to see your spending at a glance rather than constantly trying to track everything.

2. Know Your Income : Over the six months, use another colour to make all the income clear. You may just have one or two sources – your employment pay – but some people are paid through benefits, have second jobs or other sources of income. Mark everything and then tally up the total for the time period. Only mark of the regular forms of income – birthday money, inheritance and other one-off payments don’t count since you can’t guarantee they will occur each year. Once you have the total of the income, split divide it by six or 12 (depending on the number of statements) to work out your monthly income. This is the amount you have to spend each month.

3. Cover Your Necessities : You necessary payments must be covered. Make sure you take off your rent, utility costs and any others that you have to make, such as regular loan payments and insurance costs. This will give you the remaining amount of money you have for other payments. But that doesn’t mean you can spend them on anything!

4. Clear Your Debts and Save : Do you have any debts? You may have a credit card bill that is still gaining interest or money that you owe a friend. Make that a necessity so you only pay as much as you really have to. The sooner you are out of debt, the sooner you can start saving for the future. If you have no debts – good on you! – work out a savings plan so you put money away for the future, for emergencies and for your children (if you have any!).

5. Have a Budget for the Week : There are all sorts of things that you may want to buy during the week. With the rest of the money, split it up so you each have a budget for the week. If you struggle to stretch that budget, look at ways that you can cut down your spending, such as by making your own packed lunch or forgoing the coffee on the way to work. Only spend the amount available so you don’t overspend. Also, have some money left over for any special occasions coming up, your travel costs and other one-off payments that you may need to make during the year.

Budgeting doesn’t mean you have to live a boring life. It takes time to set one up but you can create a realistic one so you can still enjoy your money. Make sure your necessary payments are made first and then look at treating yourselves and save for the future.

Clarence Evans is a financial analyst who works with a company providing support systems for various firms. He studies everything, from financial conferences, e-learning activities about finance, or even the twitter feeds of knowledgeable finance point persons such as Reza Bundy. Follow him on Twitter @ClarenceMEvans

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