One thing that has become important to the average home is a household budget. This can be the one thing that you can do that will make the most impact on your financial freedom. There are some common guidelines as to how much of your income should be spent in different places. There are also many ways that a person can reduce their expenses is they are so inclined. Learning how much is too much to spend might be very beneficial to your financial situation.
Specific to You
When a person is creating a budget they normally look at their expenses and their income and create something that works for both these sets of numbers. However, there are some guidelines that a person can go buy to make sure they aren’t spending too much in one place.
|
Housing Expenses |
30% to 35% |
|
Utilities |
5% |
|
Healthcare |
5% |
|
Food |
15% to 20% |
|
Transportation |
10% to 20% |
|
Debt |
10% |
|
Savings |
5% to 10% |
|
Extras (Clothing and Entertainment, etc.)
|
15% to 25% |
Remember that this is relative to your own finances, only you know if one can spend less money in different categories. Don’t try to live outside your budget just because the percentages say you should. Balance your income within these ranges within the means you have available.
Savings and You
Savings is one of the hardest things for a person to budget. When an individual as a little extra money they want to spend it on entertainment or some other extra, however it is important to create a savings account. This account shouldn’t be a checking account. Checking accounts allow you too much access to them and will enable you to withdrawal the funds easily. Acknowledging that you need to create a savings is different than actually doing it. To help ensure that you are able to gain a savings, put money into the savings account first before other bills. An emergency fund (common purpose for a savings) should be roughly two to three monthly living expenses.
Fluidity
It is important to remember that a budget needs to be fluid and not rigid. Making changes to your budget will be common. It is important that a budget can express your current financial situation. Income changes, decreases in expenses, reduction in debts or extras should encourage adjustment of your budget. Sticking to a budget can be hard sometimes, however look back at the budget if you find things not going right. Ask yourself a few questions to help locate the problems.
- Do I have realistic goals? A realistic goal is one that can be achieved. Be sure that your goals allow you to be successful within a certain timeframe.
- Are you still out of money at the end of the month? Track your expenses over a month period to see exactly where your money is going. You will be able to know where things can be trimmed in order to help you have that extra money. For instance, take your lunch to work rather than eating out each day; this can save you a lot per month.
- Was your budget your fix to financial problems? Creating a budget is the first step to helping improve one’s financial situation. However, no matter what it is important to continue the budget in order to make it work.
Whenever you are making plans take into account that a budget will not be easy, and it will get easier with practice.
Tips to Reduce Spending
Spending too much money is common; this is the cause that many create budgets. However there are some things that one can do in order help reduce their spending before and after a budget is in place.
- If your rent/mortgage is more than 25% of your monthly income it might be wise to move to a less expensive housing, or locate a roommate.
- Turn things off. Turn off TV, lights whenever you are not home. Put in lower energy light bulbs that can substantially reduce your energy. Turn down your thermostat, or install a programmable thermostat. A programmable thermostat will allow you to set the air conditioner to kick in 15-30 minutes just before you come home.
- Adjust your phone bill. Examine your cell phone bill; determine where your phone bill needs to change. Add minutes or a data plan or reduce your phone talk time. If you have a landline, as well as other services that offer package deals looking into combining internet, phone, and cable.
- Home improvement programs can turn into fun DIY projects. Repair cracks or holes to reduce energy costs. Use cloth napkins rather than paper one. Be sure that the dishwasher or washing machine is full before running them. Use cold water rather than warm when washing your clothing.
Embrace the budget, give it a chance to work, and then enjoy the feeling of financial freedom.