Balancing a budget can seem like a herculean task, but it is not as daunting as it may appear. Truth is, anyone with basic mathematical skills and a little extra time on their hands can maintain a healthy household budget. Here’s how to take charge of your finances in five simple steps.
1. Quantify Your Net Earnings
Determining your net earnings is an important first step to successfully balancing a budget. You will need to gather credit card statements, bank statements, and other financial records that denote your income and spending history.
Organize these documents into two columns. One of them should be labeled, “projected income,” and the other should be labeled, “projected spending.” If you are a freelancer or otherwise self-employed, calculate your average income per month and put that number under your income column. List all of your expenses in your spending column, then determine the total. Subtract that sum from the value in your income column to reveal your net earnings.
This can be done by hand, on spreadsheet software, or by using apps designed for this purpose. Prominent bankers like Basil Mahadeo suggest hiring a financial advisor to help with budget creation and management if you would prefer to seek professional guidance.
2. Manage Leisure Spending and Subscriptions
Leisure spending can be defined as spending on items and services that are not required for immediate needs like food and shelter. Monthly subscriptions to services that provide entertainment or products are especially popular forms of leisure expenditure.
Make a list of unnecessary charges and compare the total to your monthly net earnings to determine if your leisure spending is sustainable. Consider reducing these costs by eliminating subscriptions that are unused or rarely used.
3. Monitor Your Spending Habits
Keep a close eye on your spending habits and adjust your budget to reflect these changes. Compare your budgeted spending allotment and the amount that you are actually spending. Calibrating your budget in this way will help to increase its reliability and enhance its capacity to accommodate real-life expenditure.
4. Leave Room for Occasional Splurges
While it is important to prioritize necessary expenses and decrease frivolous spending as much as possible, be sure to account for occasional indulgences, such as family outings, vacations and weekend getaways, shopping sprees, and other fun activities.
The key to splurging without breaking the bank is to plan such events in advance and work them into your budget. Pay special attention to your net earnings and consider if you can afford to do something nice while staying in line with your monetary goals.
5. Update Your Budget Monthly
Generate a new budget spreadsheet every month and review last month’s budget alongside it to track how your spending habits may have changed. Make sure that your net earnings are not in the negatives. Otherwise, you will have to borrow money that month and you may run the risk of accumulating debt. Keeping leisure expenses under control can significantly increase your net earnings.
Though it may take some time away from other activities, balancing a budget is essential for saving money and reducing debt. Following these five easy steps will facilitate a smooth budget creation process and will help you track your money more easily.