Creating a household budget can be a great way to plan for future events, or at the most basic just see where your money is going. However, creating an accurate budget can be a challenge because it requires transparency in all your financial transactions. And if you’ve never done it before, it can be tough. Here are some tips for how to get started creating a budget.
The first thing you need to do is get organized. This means getting all of your bank statements out, all your credit card statements, and start categorizing transactions. It is good practice to at least have the last 12 months of expenses, but the more you have, the better, because it will create a more accurate picture. To even start budgeting, you need to know exactly where all your income and expenses are going.
If doing it manually seems a little daunting, there is software and online programs that can help. For example, Quicken is a desktop software program that can help you categorize all your spending and it downloads all your information automatically from your bank’s website. Mint is very similar, except that it is an online program that tries to keep your accounts updated automatically for you.
The programs can be of great help to get the basics of organization out of the way.
The next thing you need to do is accept what you’ve spent and be honest with yourself about your income and spending habits. If you have a deficit, accept that fact and start a plan now to start closing the gap. If you live in denial about the numbers, you can’t create a budget.
Finally, the purpose of the budget is to help you plan and set goals. These can be simple – like no spending more than you earn, getting out of debt, or saving for a trip. And now, with everything organized on one sheet of paper, you can see where you can trim some stuff to align your spending with your goals. But be honest – don’t cut on paper what you really can’t cut in real life.