Household Finance: How to Set up and Manage a Measly Budget


Budgeting has gotten a bad reputation over the years. For many, it simply means that you cannot enjoy nicer things. You can’t eat out for dinner. You can’t buy new clothes and shoes. You can’t pay for that gym membership you want. No more weekend staycations. No more shopping sprees. But that is not the purpose of budgeting your money. This is where most people have it wrong.

You are budgeting your money because you want to have nice things without diving into debt. You want to be responsible for your homeowners insurance in Taylorsville or other cities, for example. You want to make sure that you can pay your dues on time. You don’t want to use your credit card every time you want to eat out or buy a pair of shoes. That’s the best thing about having a budget—you know exactly how much you can and cannot afford. That stops you from getting into too much debt that will hurt your finances later on.

Get a Sense of Your True Income and Expenses

Figure out how much you have after taxes have been deducted from your salary. How much are you left with after your automatic deductions such as your 401(k) and insurance? From here, you’ll have a sense of your after-tax income. That’s how much you have each month. If you have other sources of income, list them down, too.

Next, list down your expenses: bills, mortgages, credit card dues, food, etc. You will then learn how much you’re spending on the maintenance of your lifestyle. Are you spending too much on Netflix and cable TV? Do you actually watch TV? Maybe you can discontinue your cable connection? How about the Internet at home? Do you still need that if you already have an unlimited data plan on your phone? The idea is to spend only 50% of your true income on your bills.

Saving upCreate a Wiggle Room for Your Wants

Typically, you can have 30% of your income for your wants. It’s harder to separate your needs and wants if you can’t identify their order of importance. Wants are generally entertainment, dine-outs, gifts, and travel. These are not daily necessities. You don’t need these to survive, though you want them to treat yourself. That’s okay.

But if you are still paying for your auto or home mortgage, you might want to cut back on that 30%. You can choose to pay off your debts first and save a little before you spend money on unnecessary things. You can treat yourself once or twice a month. Anything more than that is an overkill if you don’t have the budget for it.

Commit Money for Savings

If you want to live comfortably in the future, you should commit to saving a part of your income. A portion of it should be for emergency funds, while another should be saved for retirement. This gives you a buffer in case you lose your job or have a medical emergency. You’ll also sleep soundly at night knowing that you have some money saved for yourself.

It isn’t always easy to follow a strict budget. It takes discipline to say no to the things that you want. But if you manage your money well, you’ll be more ready to face financial insecurity and emergencies.

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