Mortgages, electric bills, new windows -- it seems as soon as you get a paycheck, it's spent on home expenses. Creating a budget has three purposes, according to CNN Money. It identifies how you are currently spending your money, set goals based on your long-term financial objectives and tracks your spending to ensure it will meet those goals. Watching where your money goes can help you save for large home expenses, such as new living room furniture, and unexpected home expenses, like repairing the hot-water heater.
Items you will need
- Budgeting software
- Pay stubs
Find a computer software program to create your budget. A budget can be done with pencil and paper, but computer programs make it easier to draw it up, according to CNN Money. The programs allow you to separate expenses into categories and draw up reports. Many also have automatic budget-creation features that analyze your previous spending to estimate how much you’ll spend in the future.
List your current expenses. Go through your checking, savings and credit card statements from the past three months, as well as any receipts you have saved. List expenses in categories. Within categories, list subcategories such as dividing “house” into “mortgage,” “homeowners insurance” and “property taxes.”
Track undocumented expenses. When you’re done listing recordable current expenses, you might have money gone that’s undocumented. This is the money you withdraw in cash. Take four weeks to journal each cent you spend on day-to-day needs and use those results to figure out how much you would spend throughout the rest of the year if you continue at the same pace.
Find where you can cut back. The only way to save more is to spend less, and plenty of people can spend less. Many families making $50,000 or less are spending more money each year than they bring in, according to CNN Money. If your spending exceeds your income, then examine what categories can be reduced.
Even if your spending doesn’t exceed your income, examine your monetary priorities. If your goal is to build a nest egg for unexpected home expenses, then it might be wise to cut back on your grocery and entertainment budgets.
Set aside money for household expenses. In general, direct at least 10 percent of your earnings toward savings, says Bankrate.com. Part of these savings can go toward household expenses, while the rest of it can go to other savings purposes, such as retirement and vacations.
Revise your budget, if necessary. Your first budget might not work for your lifestyle. After making a concerted effort to stick to the numbers for at least two weeks to a month, sit down and look over the budget again. Does your career require you to invest more in clothing than in gas money? Rearrange your funds to make it work while still sticking to your goals.
- Consider budgeting using the “the 60 percent solution.” This entails that your “essential” spending comes from the first 60 percent of your total, pretax income, according to MSN Money. The rest of it is divided into 10 percent chunks: Retirement savings, emergency savings (or debt repayment), short-term expenses and fun money.
- Look out for luxuries that you have deemed necessities. If you’re spending more than you earn, then it’s likely you have been spending that money on luxuries, even if you think it’s something you need.
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