Importance of Planning a Home Budget

If you’re like most people, your parents probably tried to drum the concept of personal budgeting into your head when you were a child. They gave you piggy banks and allowances, and taught you that if you spend it now, you won’t have any cash saved for an emergency. Then you reached adulthood and the issue became far more complicated. Budgeting was no longer just an issue of savings versus expenditures. Spending on some things is unavoidable, and if you have credit cards to help you meet your needs, you must manage these as well. This makes budgeting even more important.

Understanding What You Spend

Planning a budget begins with what you did yesterday — or, more accurately, what you did over the last several months. Before you can get a handle on what you’re comfortably able to spend, identify what you’re currently spending money on. This includes your fixed expenses, such as mortgage or rental costs, utilities bills, car payments, auto insurance premiums and credit cards balances.

But your budget also includes that magazine you bought on a whim when you were in the drug store on another errand. Tally up your earnings for a month or two, then keep track of every expenditure you make during the same period of time. Ideally, you’ll find that more money comes in than goes out, but even if this isn’t the case, creating this first step toward a home budget is a good starting point to getting things under control.

Making Adjustments

The second phase of creating a home budget is adjusting your expenditures so your income exceeds them. Your housing costs are probably carved in granite, but you might be able to lower your utility bills by conserving energy and water usage.

Your biggest adjustments will probably involve your discretionary spending. If you don’t earn enough to cover all you spend, you may have to cut back on these extras. Adjusting your budget will prevent you from falling behind on bills that you really must pay, and pay promptly — like your rent and other accounts.

Savings

If your income is $3,000 a month, and your expenses average $2,500, you’ll have about $500 left over to do with as you like. You can invest it and try to make it grow, or you can use it toward whittling away at credit card balances. Or you can save it. Creating an accurate household budget and sticking to it provides you this luxury. Particularly, if you factor in putting cash away in a savings account each month, you will have money on hand to fund unexpected emergencies.

Increasing Your Earnings

If your expenses exceed your take home pay, creating a household budget will tell you that you’re not going to be able to keep your creditors and accounts happy indefinitely. You can only tread financial water for so long. Another useful aspect of planning a sensible budget is this red flag alert telling you that you really need to increase your earnings or take some big steps to cut back. You can start looking for a second job, take in a roommate, or trade in or refinance your car in for one with smaller payments. After you do so, you’ll enjoy the biggest benefit of maintaining a home budget — peace of mind.