Where Does All the Money Go?
Do you ever wonder where all your money goes? The truth is usually not that mysterious. You can discover it with a little discipline on your part—along with the help of a budget. Many people spend their money in small increments without realizing how it all adds up. As you track your income and expenses, a budget can help you gain control of your personal finances.
Make It a Family Affair
The creation and maintenance of a budget is often more successful if it is a family affair. All adult family members should be involved in the process. Since children affect and are affected by the budget, they should also be included. When they see that the family’s income is not unlimited, it can help them understand why everything they want is not always theirs for the asking.
Each family requires a personalized budget tailored to its own particular needs. Here are some basic steps:
Track Income and Spending
To start, tally all your sources of income and spending for a few weeks or months. The easy way to do this is to get a receipt for all expenditures over $5.00. You can also refer to credit card statements, receipts, and check stubs.
Set up different categories for your expenditures. The two basic types of expenses are 1) fixed—those over which you have little control, such as mortgage or rent, insurance, and utilities; and 2) discretionary—those over which you do have control, such as clothes, movies, sports events, dining out.
When you begin to see how much money is coming in and how much is going out, it is time to set priorities. Is your objective to buy a house or a new car? Are you saving for your child’s college education or your retirement? Perhaps your top priority is to get out of debt.
Prepare the Budget
Now that you have a handle on your current income and expenses and have established some priorities, you are ready to prepare a budget. Remember to keep it simple. The less complicated, the easier it will be to maintain. For instance, to estimate expenses for tax bills or insurance premiums, simply calculate the annual expense and divide by 12. The budgeting process will allow you to see precisely where you need to cut expenses. It may take several attempts before you are able to bring your expenses in line with your income and your financial objectives.
Stick to It
Get in the habit of reviewing your budget at least monthly. A weekly review is even better. In order to be effective, a budget must be consistently maintained.
Conduct an Annual Review
Also, review your budget at the end of each year. By totaling what you spent and comparing it to what you had budgeted, you will see areas to work on for the coming year.
Once you have prepared a budget, there are still some important things to remember. First, don’t forget to set aside emergency savings in case of an unforeseen problem, such as a job loss, or an unexpected major expense. The rule of thumb is that an emergency savings fund should cover three to six months’ worth of living expenses. To work best, savings should be set aside on a regular weekly or monthly basis. Second, closely monitor your credit card use. Don’t let your credit cards run away with you. Due to the ease of using credit cards, many people end up buying things they don’t really need, and they may end up costing them even more in finance charges if they don’t pay the bill on time.
Many families are wondering where their money goes. By making a budget part of your family’s financial routine, you’ll be well on your way to answering this question.