Guest Author - Rose Mary
Most people today live paycheck to paycheck, and spend what they want whenever they want. If you keep up that pattern long enough, you'll soon discover that the money runs out before you've paid all the bills, and there is never any left over for special purchases or holidays. This is out of control spending. To get control of your household spending and to start saving you will need to set up a household budget.
The thought of having to stick to a budget might make you uneasy. It sounds very restrictive and boring. But if you are serious about creating some sense of wealth, a budget can actually give you freedom. You will end up having control over your finances, know where your money is going, and have a plan to reach your financial goals. Not spending on a few things that you can do without right now means you will be able to spend on larger, more important purchases in the future. Now that is really financial freedom.
Here are some easy household budgeting strategies you can use to get started on your quest for financial freedom.
Find out how much you earn, how much you bring home each paycheck.
The way you're paid can determine how you budget your money each month. If you're paid on a weekly basis, you can calculate your budget based on four paychecks a month. That means you'll have four extra checks throughout the year to help with extra expenses. If you're paid bi-weekly, you can calculate your budget based on two paychecks a month, and have two extra checks throughout the year. If you're paid monthly, calculate your budget based on the monthly amount. You won't have extra checks if paid monthly throughout the year, so you'll need to be careful in budgeting for the extras. For those who aren't paid regularly, figure out your annual income and divide it by 12 to determine your monthly income.
Track your expenses, all of them.
Your fixed expenses will be easy to figure out. These are the items that stay the same from month to month, such as your mortgage, car payment, cable bills, etc. Your other expenses can be trickier to calculate. To find out how much you really spend in a month, carry a notebook with you and write down everything you spend for the next 30 days. This will tell you how much money you're spending, and where it is all going,such as coffee, breakfast, etc.
Figure out the difference.
Now, find out the difference between what you spend and what you earn each month. If you have a surplus, a portion of that should be budgeted for investments or savings. If you have a shortage, you have one of two choices to solve your budget woes: lower your expenses or increase your income. You may even want to do both.
Lower your expenses.
Lowering your expenses is the most obvious way to solve a discrepancy immediately between your income and your spending. Simple changes made over time, such as renting a video instead of going to the movie theatre, can add up to big dollars in your bank account. Others may be lifestyle changes, such as giving up one car and taking public transportation instead.
Taking control of your finances by setting up a household budget is an important first step to creating wealth. As you begin to make wise decisions about where your money goes, over time you will find opportunities to spend less and have more money to save and invest.