When you make the decision that a monthly household budgeting plan is the right thing to do, keep the complicated simple. Relatively speaking, personal budget planning is a simple activity to get started with: track income and expenses, adjusting to meet reality.
Yes, you can invest in computer programs or simply grab a free budget form on my website. Either way, as long as you are fully honest with the numbers, you will be effective.
However, forgetting expenses or trying to create a "what should be" family budgeting scenario will only give you inaccurate results. There is an old computer related term that fits here well: garbage-in-garbage-out.
Being consistent is the ingredient of success. Keep it real and keep it accurate; know exactly what you spend your money on, how much, and where. If it becomes overwhelming, you are probably making it too complicated. Keep it simple and you will do fine.
The Two Steps
I have two simple steps to help you get started with your own monthly household budgeting plan:
1. Determine the exact amount of income you are receiving from all sources. Include the actual take home amount (net not gross), any investment income, welfare, other support, etc. If you receive it, count it. Now, total these figures and that number becomes the amount you have to spend and save.
2. Make a very detailed list of what you spend your money on each month. Be sure to include what you spend on food, bills, clothes, pets, and so on. These are called categories. Also, count the periodic expenses, those that do not happen monthly. To help stir your memory, look back at your checkbook, financial statements, and kept receipts over the past year.
Each non-monthly expense is to be divided by the correct amount of months to determine an average monthly expense. This way you will know how much to save each month in order to pay the bill when it comes due.
Make the Numbers Work
OK, listen up now. For your customized personal budget planning to work, you need to get this part right: Once the expenses are figured out, total them. Compare this figure with your total income from the first step. Your goal is for both numbers to equal. If the expenses are more, then adjustments need to be made so you are living within your means.
Should the expenses be less than your income (meaning, you have "extra" money), simply put the difference into the savings category. This back and forth process is where the "rubber meets the road". Keep at this process until the income and expense totals equal. You MUST make this work. It will happen and you will feel a victory!
The Next Steps
Living within your means is a required step towards real financial freedom and security and then saving for future needs. Successful personal budget planning requires these two steps you have just learned about above.
So, to get started on your household budgeting, go itemize your income, itemize your expenses, and then make them equal.
Here is a free personal budget worksheet to get you started. Let me know if you have any questions.
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