Budgeting

The Benefits Of Setting Out A Monthly Household Budget

By Alex Muir

Keeping on top of your finances has never been more important and is certainly not a subject that should be overlooked, no matter how busy or otherwise pre-occupied one might be. A few moments set aside each week to keep an eye on your income and outgoings can reap dividends later and save the expense, worry and frustration of finding your account becoming overdrawn at the bank.

Getting into the habit of setting - and just as importantly - sticking to a budget need not be especially complicated or time-consuming. Essentially, you need to make a careful note of your income. This should include your wage or salary as well as any regular, predictable income you may have which could include sums received from a part-time job, interest on savings or even dividends payments from shareholdings. Thereafter you should pay careful attention to your outgoings, establishing firstly those expenses which are of a regular nature and cannot be avoided, such as rent or mortgage payments, heat and light and food costs. By setting off your outgoings against your regular, predictable income you will be able to see clearly how you go through your money each month. You should also be able to identify any periods where you may have a short-term funding problem, for instance when you are waiting on a salary cheque at the end of the month but still have groceries and other necessities to pay for in the meantime. The idea behind establishing a household budget is to alert you to any such funding gaps so you can take the appropriate action, and also to identify areas of expenditure that you may be in a position to cut down on in the future, thereby saving you money in the long run and, ultimately improving your personal financial position.

Sticking religiously to a budget may also help you to cut down on impulse buys, which can have a dramatic effect on the amount of money available as the month end approaches. We are all guilty to a certain extent of occasionally buying something which we really don't need - or sometimes even especially want - simply out of boredom. This can often happen when we are surfing the net and come across an item or service offering what appears to be an irresistible discount. Fixing a budget at the start of each month and only committing to buy items provided for in that budget can help you to resist the temptation of the impulse purchase, though needless to say a degree of self-restraint and discipline will also be required. Having said that, you should also take a realistic approach when establishing a budget, recognising that we all need a little treat from time to time. Making allowances in your budget for one or two little luxuries means that you are less likely to look upon the whole budget exercise as a chore, with the result that you are much more likely to stick with it and reap the rewards in the long run.

Likewise, you also need to build into any budget you prepare, a certain amount to cover contingencies and unexpected expenses. No matter how careful we are, accidents will inevitably occur around the home and will need to be dealt with. Similarly, essential equipment like washing machines have a nasty habit of breaking down when you least expect it and if you have not included provision in your budget for such unforeseen events you may end up overspending in other areas, leaving you short should something such like this occur. It may be difficult initially to know how much you should set aside for contingent expenses but, over time, as you become more practiced in setting a budget, not to mention more aware of your spending habits, things will become easier.

Finally if the whole idea of trying to establish a budget seems a little daunting, if you really do not know where to start, do not despair. If you find yourself in that position you may want to consider investing in some budgeting software which you can run on your computer. There are a number of excellent packages on the market which will prompt and guide you into setting up a detailed budget and also help ensure you cover all the necessary areas. And, just in case you are wondering, they do not cost that much either!

The author is the owner of Redfoot Personal Finance, a personal finance blog packed with lots of money saving tips and other ideas on how to save money on your household budget.