If you regularly have to dip into your overdraft or start relying on credit cards at the end of each month, you're living beyond your means. There are two ways of dealing with this; you can either try to make more money, or take a long, hard look at your spending to see where you can make cutbacks. Analyzing your monthly budget will be a good idea even if your household income adequately meets your outgoings. You may be able to identify ways you can make your money go further and boost the amount you're able to squirrel away. Checking your spending on a rolling monthly basis will ensure you're spending as efficiently as you can.
Gather together your bank and credit card statements. Get your partner to join you with his monthly accounts.
Create two columns on a piece of paper; one titled "Income" and the other "Outgoings."
Add all the money that comes into your household to the "Income" column. Include your wages and your partner's wages, any benefits you receive and income from any investments you have. If your employer withholds your Social Security, Medicare, income and state taxes, you'll be able to enter your monthly take-home pay. If you're self-employed, calculate your average monthly income from last year's tax return.
Enter all your spending in the "Outgoings" column. Break this down into sub-sections such as mortgage/rent, insurance, utilities, groceries, credit card and loan debt, clothing, childcare, leisure spending and so on. Add a miscellaneous category for any withdrawals you or your partner have made from ATM machines that you can't identify. You can break your different sub-sections down further. "Utilities" covers your gas, electric and water bills, as well as your cable, phone and broadband connections, for instance.
Calculate your total income and your total outgoings. Then subtract your outgoings from your income. If you get a negative figure, you're living beyond your means.
Identify ways you can cut your spending and make your monthly budget go further. Use price comparison sites to make sure you're getting the best deals available from utility suppliers. Cancel expensive cable packages, gym memberships and magazine subscriptions you never use if you're not locked into contracts. Start buying store-brand supermarket products instead of the more expensive branded alternatives. If you find you're spending a big chunk of your income on eating out and socializing, try to stay home more and cook your own food. Turn electrical appliances and gadgets off instead of leaving them on standby. Download content to your tablet computer from your Wi-Fi connection at home before you go out to avoid pricey 4G data charges. Your debt to income ratio -- or the amount you pay in credit payments, including your mortgage, every month divided by your gross income -- should not amount to more than about 40 percent. See if you can refinance your debt to pay less interest and cut your monthly payments if your debt load is too high, and cut up your credit cards to keep from racking up more debt. Go through every element of your budget to find ways you can save money.
Repeat the process every month to make sure you're spending your hard-earned cash as wisely as possible.
- Create a spreadsheet template instead of doing your calculations on paper. Save your blank template to a folder on your computer to use on a monthly basis.
Michael Roennevig has been a journalist since 2003. He has written on politics, the arts, travel and society for publications such as "The Big Issue" and "Which?" Roennevig holds a Bachelor of Arts in journalism from the Surrey Institute and a postgraduate diploma from the National Council for the Training of Journalists at City College, Brighton.