The need to make a budget came up in one of my life coaching sessions this week. We were talking about the Bahá’í teachings on how to educate the girl children, in which the concept of household management emerged.Her husband had always managed the family’s budget and she wanted to take over this responsibility. So this blog posting is written for her!
Using a budget is one of the best ways for you to determine where you stand financially so you can plan for future expenses. A budget can help you live within your means, get out of debt, and have money available for a new car, vacation, or education.
Planning and using a budget doesn’t have to be complicated. Plus, once you’ve put your budget into place, it makes spending decisions a snap.
Here’s how to plan your budget, step-by-step:
1.Set goals. Before you begin to plan, it’s important to know what your financial goals are.
·Do you want to pay off your debts?
·Do you want to save for a new home?
·Have you always wanted to travel overseas?
·Are you thinking about your children’s educational future?
Write down your family’s financial goals and post them where everyone can see them. This will help you all remain focused on reaching your goals rather than giving in to temptations to buy things you don’t need.
2.Determine income. Figure out how much money you currently have coming into your home. It’s hard to establish a budget if you don’t know how much money you have at your disposal. This would include:
- Employment income for each family member contributing to the budget
- Interest earned from money markets, savings accounts, or investments
- Any other form of income
3.Figure out your expenses. Write down your family’s expenses. Listing each bill will help you determine how much money you need to earn each month to reach your financial goals.
·List every bill your family has regardless of how often it’s paid.
·Group expenses together (insurances, credit cards, etc.) to make them easier to calculate.
·Include cash for each day, such as money for gas, lunches, tolls or parking.
4.Include savings. Remember to pay yourself! Instead of waiting to determine what money is left after paying the monthly bills, include your savings account as a bill and pay it just as you would any other expense.
5.Subtract expenses from income. Add together all income sources and then add together all expenses. Subtract the expenses from the income, and this will tell you what financial shape your family is in.
6.If your income is greater than your expenses… If you have money left after paying the bills, you may choose to do one of the following:
- Put additional money in savings.
- Invest the money with the help of a financial planner.
- Pay off credit cards or other monthly credit accounts so you can get out of debt.
7.If your expenses are greater than your income… If your expenses are more than your income, you have some decisions to make. They may not be pleasant, but if you want to get out of the avalanche of debt, changes are necessary.
Here are some changes you may want to make:
- If your home is too large for your family, you may want to downsize into a home with cheaper payments.
- Do you have, and do you need, more than one vehicle? If two or more cars are necessary, by all means keep them. However, you may be able to buy vehicles that are cheaper to own and maintain. If all the cars aren’t necessary, why not sell the extra ones?
- Avoid eating out. You may not think eating out is that expensive, but a family of four can easily spend $40 or more each time they eat out. That same amount of money can buy groceries for several meals, instead of just one.
- Put a hold on credit card spending. Either cut your credit cards up or put them in a plastic bag filled with water. Place the bag in the freezer and leave it there.When you need to use it, you’ll have to let it thaw gradually – putting it in the microwave to thaw, will destroy the card!
- As you’re able to pay off one credit card, close the account. Then use the money you spent each month on that bill and add it to your payment for the credit card with the next highest interest rate. This process accelerates the elimination of your debt.
And remember this quote from the Bahá’í Writings:
Trust in God and engage in your work and practice economy; the confirmations of God shall descend and you will be enabled to pay off your debts.(Abdu’l-Baha, Baha’i World Faith, p. 375)
It’s possible to create a budget you and your family can live with. By following these step-by-step instructions for planning a budget, you’ll be taking a financial step in the right direction. Stick to your budget, and before you know it you can be out of debt and saving for something special!
What helps you budget? Post your comments here: