How to create a household budget
Budgets are a useful tool for anyone of any financial background for keeping them on top of their in and outgoings. It’s also a useful way to help people achieve their financial goals, whether it’s saving towards the next family holiday or paying off debts. Budgets are beneficial, as they allow people to see exactly what income they receive but to also spot where cut backs could be made.
Why do I need a budget?
A budget is a great way to help gain back control over finances, and allows people to organise their spending each month. Gathering all the information, about income and spending, means people can find out where they’re overspending and what they can afford.
Managing finances can be quite a stressful task, and affects individuals in different ways. Our recent Protecting Our Families report revealed that more than three quarters of families (76%)1 have no financial plan in place for dealing with a loss of income. Setting up a household budget would be beneficial for all households, so they’re prepared for dealing with any financial loss. With more people associating their finances with the feeling of stress and worry, this handy tool could keep those negative feelings at bay.
Which budgeting technique should I use?
There’s many ways people can create a budget - depending on what best fits the person and the financial goals being achieved. Before deciding which method to use, collate all the information and numbers that will be involved in the budget.
It’s worth doing research into how other people have set up their own budgets. This way, people can decide which method best suits their goals and needs. We’ve put together some examples of methods people can use to create their budgets, which include:
- Pen, paper and calculator
- Online tools and calculators
- Mobile and tablet apps
- Excel spreadsheet on a desktop computer
Once the method for the household budget has been chosen, people can then thoroughly go through their finances and decide where they’re overspending and can cut back or make new savings. Make sure priority spending is put first, such as a mortgage, rent and bills, then decide which financial goals should go next – such as paying off a debt or overdraft. Any money left over could be put into a savings account as a ‘rainy day’ fund, or towards a savings goal.
How to avoid overspending each month
- Spread finances over several bank accounts. It’s worth dedicating an account for essential bills and another for savings or personal spending – so that people avoid overspending in one account.
- Reassess budget. Circumstances and income may change for some people, so it’s worth reassessing in and outgoings to keep on top of bills and any outstanding debts.
- Check for any unused services. If there’s any services being paid for and not used, it’s worth cancelling the contract to save some extra money each month. Paying for an unused gym membership, an online streaming service or magazine subscription all adds up.
- Start a spending diary. It may seem like a lot of effort, but writing everything down is another great way of seeing where money is going, and can make people more aware of when they’re overspending. Also, not all spending can be kept on track by just looking at a bank statement – so a diary is useful for catching invisible spending.
- Additional sources of income. For families just about managing, it might be worth exploring the option to make some extra money. From renting out unused space around the home, selling photos on stock image websites or helping others with household chores, utilising spare time could be the means to helping complete a financial goal.
Sticking to a household budget will help families be at ease with their financial goals, whether it be a short-term or long-term saving plan. It not only ensures all the important bills are covered, but also if there’s any extra left over – for unexpected days when the car breaks down, or for some needed family time out the home. For that added support, it might be worth taking out Income Protection Insurance – for those unwanted injuries and sickness – so families can have piece of mind.
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