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Top Tips for Running a Household Budget

By Edited Jan 2, 2016 0 2

Ever wondered why the money runs out a week before payday? Do you keep track of your spending? Do you forecast what you are likely to have to spend in the coming year?

If the answer to the last two questions is no then the answer to the first question is almost certainly yes.

This short article may be of some help if you want to organise a household budget, control your spending and ensure that you don't dip into the red on a regular basis.

Household expenses fall into two categories, fixed costs associated with your rent or mortgage, your utilities such as electricity and water, and your expenses for Telephone, TV, taxes and insurance. The good thing about these costs is that they are reasonably easy to forecast on past usage. It helps to make a list of these costs and add them up; I devised a simple Excel spreadsheet to do this. I simply listed each cost against each specific item; this then gave me a fixed cost for each month. I broke my spreadsheet down into 12 sheets, one for each month and provided a summary sheet for the year.

You should know your income and by this I mean all the money that is coming into the household, through wages, expenses, benefits and any other sources.

The simple thing then is to subtract your fixed household costs from your household income and this will provide you with an indication of your surplus, before you spend any further money. For example if you earn £1500 per month and your fixed expenditure is £700 per month your residual per month is £800, so simply if you spend more than £800 you will be into a negative situation.

To avoid the negative situation you need to create a budget plan, and this is the harder part. Many of us don't know how much we spend each month on the variable items that make up a household budget. I call them variable items because we have a choice about making the purchase and we have a choice about how much we are prepared to spend on an item. Variable items will include the essentials such as food, clothing, entertainment, running a car, holidays and the cash in our pockets.

Before starting your budget it is worth recording over a month how much you spend and what you spend it on, it can be quite a revelation, but do it make a list and you'll begin to get some idea of where your money goes, it also provides a baseline figure as you move from the red into the black. The next thing you have to do is question yourself on why you spent money on a particular item, and was it worth it, only you can answer that question

You need to add to your spreadsheet your expenditure on the variable items and do this for a month or so before you set your budget. A regular pattern will build up, so for example you may spend £60 a week in the supermarket, £20 a week in the pub and £25 a week on transport, these figures become the basis of your variable budget and will provide a very quick indication of why the money runs out a week before payday. Having established an itemised list of your expenditure these items can be added to your spreadsheet and can be included for each up coming month, you can then build up a picture of your forecast expenditure for the year (at this point I would always add about 10% to my forecast). If the forecast is in the black it's probably OK, if it's in the red then you can at least target areas where you can reduce your expenditure. For example if your entertainment budget covers meals out, choose a cheaper restaurant, get a take away, or eat-in. The whole objective must be to reduce your expenditure, stay in the black and manage your budget, and in my opinion the only way to do that is to know what you spend and what you spend it on, and that can only be achieved by having a budget.

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Comments

Sep 2, 2010 9:15am
Sookie
good information here, they should teach this in school Great article!
Sep 2, 2010 9:25am
BlogMakesMoney
very useful info lot of good points about budget
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