Household budget planning can turn out to be an annoying process for many. Also, the word itself can be scary for many. In fact, many homeowners avoid tailoring a budget plan because they are clueless where to begin. However, once you do it right, there’s no turning point. Contrary to the popular belief, budgeting doesn’t mean cutting off your expenses to the bare minimum. However, budgeting is just a plan for you to follow if you want to avoid crippling debt, consolidate debt or just manage your household income in a more efficient fashion. Below are some simple tips that you can follow when establishing a budget, to make sure that it fits your family like a glove.
What is a Budget Plan?
A budget plan is a simple description of your income and expenses. Money-in, money out. This will offer you a clear idea of where your money is going on a monthly basis and where your money is coming from. Maybe you have multiple income sources and you have to keep a closer eye on those. Also, it will offer you a better idea of how much money you successfully put in your savings account. You can develop a budget planner on your own using simple Excel functions or you can invest in free money management tools. These will offer some perks, depending on how are they developed. However, you should look for tools that include dedicated sections to the following:
- Home expenses;
- Living expenses;
- Transport expenses;
- Loan expenses;
- Leisure expenses;
- Insurance expenses;
A similar template will help you keep a closer eye on your household budget and maybe even become aware of unnecessary expenses that might put a strain on your budget without bringing you any benefits.
How Much Should You Allocate to Each Category?
The 50-20-30 method seems to be the most appropriate one when it comes to splitting your income. 50% should go to your monthly expenses, including ills and other similar ones, 20% should go to your savings account and 30% should go to entertainment and leisure. In households with a modest income, this may not be the best method to apply. The savings might end up too low in spite of your efforts. On the other hand, 50% of the household income might still be too low to pay off all your monthly expenses.
To make sure that you create a budget that actually fits your family, you should reallocate money from a category to another until it meets your financial needs. This may be the only way to actually save up and pay off all your monthly expenses, but also have some fun at the end of the week.
Try to Handle Your Debt Better
Living a debt-free life is impossible for many, unfortunately. Especially low-income families are likely to accumulate debt by trying to cover some of their expenses with credit cards which will damage their long-term financial stability. However, if the debt is unavoidable, low-income families should research IVAs. As explained on this IVA site, such financial products are due to a decrease in the burden created by crippling debt in families with more than £5000 in debt, coming from multiple sources. Being able to write off a large chunk of your debt does not equal declaring your bankruptcy. It’s only a viable solution for those households with a regular income to manage better what previously was crippling debt.
These arrangements can be applied to different types of loans, from unsecured loans to credit cards, payday loans, and HMRC debts. Professional insolvency practitioners will be able to tell you more about similar products and will offer quite insightful information on these products. Just make sure to find a reliable insolvency practitioner.
What are the Advantages of Budget Planning?
Budget planning is offering you the opportunity to make informed decisions and have a better outlook on your expenses and income at the same time. Below are detailed some of the main benefits of creating a highly personalized budget plan.
- Spending awareness. If you don’t have a clear budget sheet implemented, you are unlikely to find out exactly where your money goes and how much you are spending on a daily basis. Something that may seem like a minor expense will turn out to be damaging to your monthly stability if you don’t pay close attention. An extra bottle of wine, an extra cup of coffee at your favorite coffee shop, and extra sweatshirt, all these will add up at the end of the month and you might end up with a big hole into your budget.
- A budget plan limits overspending. Budgeting allows you to cut off some of the most unexpected and unnecessary expenses. Being fully aware of your income and expenses will most certainly help you limit overspending and cut impulse purchases.
- It will make saving easier. Knowing exactly how much you have to redirect to your savings account will help you, in the long run, to save up more money. Establish how much you want to save up and stick to the plan. This will make it easier for you, in the long run.
- A budget plan will offer you financial security. Financial security is a thing that most families today struggle with. Especially those making minimum income will see themselves forced several times a month to use their credit cards, just to cover some of their bills. But a budget plan will offer you more control over your expenses and will make you more financially stable, in the long run. Knowing exactly how much you can afford to spend on various necessities will make you tailor your plan more carefully and effectively.
When it comes to budget planning, once you get the basics to settle, it’s unlikely to give up such habits like money planning. It’s a great way to be in control of your finances. Also, try to find reliable debt management solutions to reduce your monthly expenses.