Creating a home budget plan is a strategy for controlling your money. Without a plan, you find yourself wondering where all of your money went at the end of each month. A budget or spending plan is simply a way to tell your money where you want it to go instead. By choosing exactly where your money goes, you can purposely set aside extra for emergencies, special vacations or a rainy day.
Write down all income you receive in a given week or month. Income is traditionally the take-home pay from your job, but you may have other sources such as royalty payments, income from a part-time business or payments from a legal settlement.
Add all income sources together and determine how much total income is available in a standard month. Most bills are paid monthly so it helps to create a home budget plan based on one month's time. If you're paid weekly, for example, combine weekly paychecks to come up with a monthly average.
Write down the name and amount of every regular bill you currently pay. Regular bills usually include rent or mortgage, credit card payments, utilities and car insurance. If some of your bills vary, write down an average or estimate that's slightly on the high side so you have wiggle room for the fluctuations.
Write down every other expense you have in a given month that doesn't come in the form of a bill. Groceries, for example, and gasoline are regular expenses that most everyone must budget for. For each of these non-bill expenses, refer to recent credit card statements and checkbook ledgers to help estimate how much money you spend on each in an average month and write that amount down.
Add together every bill and expense you regularly spend money on in a month, and compare that total to the total amount of income you receive. If you spend less than you earn, you're in good shape. If you spend more than you earn, you will need to make difficult choices in your budget.
Review the list of expenses with a critical eye and be sure you've put down realistic amounts for each item. Estimating $100 per month for groceries is commendable, but not realistic for the long term if that's the bare minimum you need to keep from starving. Likewise, if you've written down $500 for groceries but your total expenses are more than your income, you may need to reduce the amount of money you're spending in that category. Adjust any expense estimates up or down as needed.
Write down extra expense categories for savings, emergencies and recreation if you did not add those the first time and if you still have a surplus of income after deducting all expenses.
Write down categories for infrequent bills, such as the annual tags and registration on your car. Divide annual bills by 12 to determine how much money you need to budget for them each month, and divide semi-annual bills by six. Budgeting for and putting aside a small amount of money each month toward larger infrequent bills makes those bills much easier to pay when they come due because you aren't shuffling money around trying to come up with a much larger amount all at once.
Hang the final results of your efforts on the refrigerator or put them in the area where you pay bills. The amount of money listed next to each bill and expense is the budget amount you have chosen for your home. When spending money or paying bills, make every effort to keep your expenditures less than or equal to the amount you have written down on that list.
- Dave Ramsey: Do Your Dollars Have Names?
- The Total Money Makeover: A Proven Plan for Financial Fitness; Dave Ramsey; 2007
- The Digirati Life: How To Make A Budget In 10 Easy Steps
- Plan to be flexible with your new budget for the first several months, particularly if you estimated many of your expenses. As you track how much money you're spending you'll be able to create more accurate estimates and budget amounts.
- If your income is less than your expenses you must cut some items down or completely out. If you're unable to completely eliminate an expense, then try reducing the allocated amounts in several areas so that you won't feel overly deprived in one.
Kathy Burns-Millyard has been a professional writer since 1997. Originally specializing in business, technology, environment and health topics, Burns now focuses on home, garden and hobby interest articles. Her garden work has appeared on GardenGuides.com and other publications. She enjoys practicing Permaculture in her home garden near Tucson, Ariz.