How to set a household budget
Creating a household budget and sticking to it can make a big difference to every aspect of your life.
If you have a clear idea of what you’re earning and spending, you can see if you’re living within your means and work out where changes might need to be made. For instance, could you realistically be saving more?
At the same time, you’ll put yourself in a stronger position to achieve your financial goals, from saving for a deposit on a house to putting money into a pension.
Here are five handy tips so you can set a budget for your household and get on top of your finances.
Put time aside to go through your paperwork
The first step is to go through all your paperwork, emails and online accounts so you can see where your money is going. This can include anything from bank and pension statements to receipts, utility bills and details of any other investments or income sources you may have.
We should stress that this can take some time, and it’s not a job that can be rushed. So take your time – at least an hour or so – so you can be confident you’ve got accurate figures available.
Work out how much money you have coming in
Although you’ll probably know your basic salary, you’ll also need to know how much you have left after you deduct outgoings such as pension contributions and tax.
You should also factor in other sources of income you may have. For example, you could have revenue-generating investments or be self-employed, in which case you won’t be on a set salary.
Do this for each of the last few months, as your monthly income might vary, so it’s important to get a clear idea of the average amount you have coming in.
Work out your essential spending
Once you know how much money you’re earning from month to month, calculate how much of it goes towards essential spending, such as utility bills, groceries and mortgage payments. Again, the documents you looked at earlier, such as your bank statements and paperwork from your utility providers, will contain the information you need to work this out.
When you’ve calculated your essential spending, check this against your monthly earnings. The amount that remains will be what you have left for non-essential spending.
Look at how you spend your disposable income
Go through your bank statements and receipts from the last few months to see where you’re spending your money and identify those items that are non-essential, so you can see what you’re doing with your disposable income.
At this point, you should be able to see if you’re spending more than you earn, or at the very least, not saving as much as you could be.
Create a realistic budget
You now know how much you’re spending on essentials and non-essentials, so you’re in a position to make decisions about your finances.
Do you want to spend more? Do you want to increase your pension savings? Could you be getting a better deal on essential expenses that can free up cash? Determine what you want to achieve and set a reasonable budget that reflects your circumstances and your priorities.
There is no hard and fast rule when it comes to creating a realistic budget, but there is a good rule of thumb that many people follow.
This is called the 50/30/20 rule, which means you should aim to spend 50 per cent of your income on essentials, 30 per cent on discretionary purchases, and then save the remaining 20 per cent.
Your budget should also reflect the fact that you’ll inevitably face unexpected expenses. For example, if an expensive household appliance breaks and needs replacing, you’ll want to be able to buy a new one without slipping into the red. Similarly, you’ll have seasonal expenses, such as family birthdays, anniversaries and occasions such as Christmas, which can be costly, and which you can budget for in advance.
If you have any questions about budgeting and getting on top of your wider financial situation, please don’t hesitate to get in touch with us and we’ll be happy to answer any of your questions.