Successful personal financial management relies on balance. For long-term consistency, incoming cash flow must be sufficient to cover spending. And while ups and downs are part of the equation, it’s important to prevent monthly obligations from rising beyond your ability to pay. Common sense principles are a good start, but these basic ideals need reinforcement for some money managers, who find themselves struggling to keep pace with expenses. For added assurances, use these tips to find firm financial footing and protect yourself from delinquency and default.
Budget Fundamentals Set the Stage for Success
Budgeting is a relatively easy process, yet many household do not take the time to track income and expenses. Without a reasonable understanding of where your money comes from and where it goes, you’re at a disadvantage managing money. In order to establish a working budget, start by monitoring your financial behaviour for a period of one to three months. Create a ledger, broken into several spending categories, and make entries as money comes and goes.
Several worthy budgeting apps are available to help you get a handle on family finances. Common budget categories include:
Shelter – Accurate budgets address your most important expenses first. In the case of residential housing, this may also be your most expensive budget entry. Fixed expenses like rent and mortgage payments do not ease over time, so they furnish the foundation of your spending budget. As budgets firm-up, some families recognise housing costs as unmanageable, calling for refinancing or other cost saving measures.
Sustenance – Food is another major spending category, especially for large families with many mouths to feed. As you craft your budget, account for supermarket buys, but also include the cost of meals eaten away from home. When food spending rises beyond affordability, meals out are one of the first areas trimmed for savings.
Entertainment – This discretionary category is ripe for pruning when costs run high. Holiday, musical shows, theatre and other personal entertainment outlets fall into this classification, as well as home telly services and even magazine subscriptions. And while recreation and leisure pursuits are essential rewards for hard work and success, many novice budgeters find ways to save money on entertainment.
Household – Depending upon how you wish to break-down your individual budget, household spending can be isolated into groups like: energy, maintenance and upkeep, home improvements, and other costs of keeping your residential flow moving. As a catch-all category, all of these aspects can be lumped into one column.
Evaluate and Adjust
Once you’ve determined how much money you spend each month, savings opportunities present themselves in each category. If your three-month budget snapshot shows crisis-level deficiencies, major retooling may be required to create a sustainable ongoing budget. But in many cases, a few minor spending adjustments are capable of reducing your household expenses, freeing financial resources for other purposes.
Trim Waste – Waste consciousness leads to savings in multiple areas. Food, in particular, can be managed to reduce waste, resulting in significant savings for most families. Planning meals, accounting for leftovers, and shopping to a list are three prudent ways to trim food waste.
Use Energy Efficiently – There are several ways for families to trim energy spending. Petrol, for example, is conserved by adjusting motoring habits to create greater efficiency. And grouping multiple errands together into a single outing also saves substantially when compared to making short trips here and there. Sharing motoring obligations with others also creates greater efficiency, as costs are spread across multiple motorists. Maintaining your car can save money too, since a well-tuned machine uses less fuel.
Manage Subscriptions – Memberships and subscriptions create repeating expenses that tax your budget each month. If you use paid-for services infrequently, it may not make sense to retain them. From health club memberships to magazine subscriptions, evaluate usage and spending, to make sure they are aligned.
Effective personal financial management starts with sound budgeting. Once it is in place, sticking to your monthly budget yields savings again and again. And though peaks and valleys are natural features of household money management, budget consciousness keeps you prepared for whatever life throws in your direction.