Creating A Home Budget With Financial Goals In Mind
Your Home Budget
I think it can be agreed that a home budget is necessary. You want to make sure that you are allowing for enough money each month to meet all of your bills. The last thing you want is to end up short, missing a payment, and incurring late fees and/or added interest payments.
But, is that all you want to accomplish with a home budget? There are many discretionary budget items which allow you to spend as little or as much as you deem necessary each month. Things like groceries, entertainment, clothing, vacations, gifts, etc.. can be highly controlled.
It is extremely important to have some financial goals as a family. At least once a year, it is a good idea to sit down and talk about the things you want to accomplish financially. Maybe it is saving up for a big vacation, a new car or a down payment on a house. Having goals will not only help you to stay focused on your budget but will also help you in determining a practical amount for your discretionary items.
It can still be difficult to come up with a practical figure though, that you can stick with for discretionary items, unless you track expenses.
I'm not going to try and sugar coat it - tracking expenses is a big pain. It takes a lot of discipline, at least at first, and seems tedious.
When my husband and I were first married, we were on a pretty tight schedule. We had lots of goals. We wanted to buy a house, start retirement accounts and have a good emergency savings account. That meant we had to really watch our expenses. We kept track of every last cup of coffee that we bought. It's amazing how much all of those little things can really add up.
Doing this exercise taught us where we were exceeding our spending frivolously. We quickly made adjustments that paid off for us. Instead of going out with friends, we would have them over for pizza. We used coupons at the grocery store and brought lunches to work.
After about our first year of marriage we were able to sell our mobile home and buy a duplex in which we rented the other half out for extra income. Each year we continued to write out new goals and re-evaluate our budget.
You don't necessarily have to track your expenses forever. Once you get to know your spending habits and adjust your budget, you can just work on sticking to your budget. You will set your budget amounts at the beginning of the year but the discretionary amounts may blend together. If you feel like you are spending too much on groceries you might spend less on clothes. If you begin having to dip into your savings to cover your fixed expenses, then it is time to start tracking expenses again.
When I was tracking expenses, I used accounting paper - because I love my accounting paper - with headings along the top of each discretionary budget item. Down the side is where I dated and listed each item. I ran totals each month for each category.
Today there are some great expense tracking software options available. These can make the job a little easier.
Expense Tracking Chart
01/03 Bozo's Grocery Store
01/04 Beano's Coffee
01/05 Red Lobster
01/10 Bozo's Grocery
01/14 Yuppies Steakhouse
Small Section Of Expense Chart
The above chart shows just a small sampling of expense tracking using just two categories over a two week time frame. You can get the idea of how this is done manually.
Just continue the categories across the top of the paper and there would surely be more entries along the side for each transaction. You could do a sub-total daily or weekly with a grand total at the end of the month.
This is an effective way of showing you just how much you are spending in each discretionary category.
Expense Tracking Software
IEMS - Income And Expense Tracking Software: This software lets you track expenses daily while getting weekly and monthly totals. It also has the ability to get a grand total for any date range that you may specify. You can also track all of your income from all sources.
Keep Track Software; Allows you to easily store your ATM, debit and credit card transactions. You can keep a running balance of all your transactions and track all your finances including cash transactions.
Money Strands On-line Software: This one automatically sorts your transactions into categories, allowing you to easily spot where you are spending too much. It will also send an email whenever you have a low balance or approach a budget limit. It doesn't get much easier than that!
Family Budget Planning
After you determine your financial goals and come up with the amounts that you feel you can live with for discretionary categories, you are ready to prepare your family budget. I have always used Excel to prepare our budget and the following video does a good job of explaining the process.
It is easy to make adjustments to a budget created in Excel. Any new calculations will be done automatically. After spending some time tracking your expenses, you may find it necessary to go in and change a budget amount for future months and with Excel this is easy to do.
Each new year just edit your budget with new income amounts from raises or any other changes. After determining your new goals for the year and changes in family circumstances, you can also edit your expense amounts.
Do you currently track your expenses now?
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