Develop a Household Budget to Get a Grip on Your Finances

If you’ve never really kept track of your expenses each week or each month, learning where your money goes can be eye-opening. But it can also be the first step in gaining control of your finances. A budget helps you find ways to save money and to avoid or reduce unnecessary expenditures, leaving you more money at the end of the month. Here are some common steps you can take to create – and stick to – a budget.

Step 1 – Track Your Expenses
Save all your receipts and write down everything you spent money on, even the smallest purchases, for a month or so. Note which expenses are necessary, such as rent or mortgage, utilities, insurance, car payments, credit card payments, etc. Also note which are optional, such as entertainment, fast food, and the like. Writing down where the money is going can give you important insights into your spending habits, and where you might be able to realize some easy savings.

Step 2 – Know Your Income
Start by figuring out how much money you have coming in every month, after taxes. Are you expecting overtime or bonus payments, or any layoff days? Consider those numbers, too.

Step 3 – Divide Your Monthly Expenditures
One way to categorize your expenditures is to divide them into “Necessary,” “Occasional Needs,” and “Optional.” Necessary expenses are things such as rent or mortgage payments, utilities, groceries, car payments, and auto insurance. Occasional needs may be clothing, school supplies, parking, dry cleaning, and the like. Optional expenditures include restaurant meals, movies, CDs, and other things you can do without.

Step 4 – Begin Doing the Math
Add up the numbers in the “Necessary” column and then subtract that from your monthly income. Don’t forget to account for expenses due every six months (like car insurance) or taxes.

Next, add up the column of “Occasional Needs” and make your best guess as to how much you will need to spend each month. Subtract that total from the amount left after you subtracted “Necessary” expenditures.

Now you have the amount that you can spend on “Optional” items. However, putting some of that money into savings is a very good habit to get into. That way, after a while, you’ll have money set aside for emergencies or unforeseen circumstances. Another good trick is to give yourself a weekly allowance of cash and not spend any more than your allowance.

Step 5 – Review Frequently
As you budget every month, you may notice recurring expenses that are unnecessary. Weed them out. Be ruthless. For example, if you stop and get a cup of coffee every morning, consider going once a week instead. Save money on gasoline by taking public transportation or carpooling to work.

Step 6 – Reward Yourself Once in a While
Remember to reward yourself once in a while as you see your finances improve. This will help you remember why you’re budgeting in the first place.

This article first appeared in the Consumer Connection Magazine produced by the Department of Consumer Affairs and is reprinted with their permission.  To learn more about the Department of Consumer Affairs visit their Web site at www.dca.ca.gov