How to manage your household budget?
Aug 26, 2014

Author: PersonalFN Content & Research Team

Despite of earning reasonably high income, a number of people are not left with any surplus for doing investments. If you are also one of them, than you must consider restructuring your household expenses before it gets too late. Moreover, making a budget for your house will help you understand where you spend money and how you can actually lower your expenditure.

PersonalFN tells you how to create your household budget

List your inflows and outflows:

Make a list of all the monthly incomes and expenses of your family. Even if you pay for certain bills on a fortnightly basis (such as groceries, household expenses etc.) or yearly basis (such as life, health or car insurance premiums etc.) calculate their monthly values. Remember to include even leisure and lifestyle expenses such as movie tickets, restaurant bills, birthday cakes etc. as these trivial figures amount to huge bills when taken collectively. This will enable you to understand the areas you need to start reducing your outflows in order to meet your financial goals.
Reduce your expenses:

After making a list of your expenses, distribute them into necessities, comforts and luxuries. Necessities are those expenses which you cannot live without such as food, home rent or Equated Monthly Installments (EMIs) on loans, etc. Comforts are expenses which are required for a decent and comfortable standard of living such as an outing once a month, buying clothes etc. Luxuries are those expenses which are not important for your survival such as spa, trips abroad and so on. If you want to increase your savings, it is very important to cut down all the unnecessary expenses. Do away with the luxury expenses and start rationalising on the necessities and comforts as well. Limit your credit card usage, use discount coupons while making important purchases, plan your shopping trips in advance so as to save on transportation costs, reduce the consumption of electricity, decrease your outings (movies, dinners etc.) and so on. Find out less expensive and economical ways to live life. If your loans bear a very high rate of interest, consider discussing this with your bank or shift your loan to another provider. If home rent is your major expense that leaves you with very little to spare, consider relocating to a cheaper area.
Increase family income:

If reducing expenditure does not result in adequate savings, find an additional source of income. You may also encourage your spouse to find a part time job to meet the family’s financial goals, if he or she is not already earning. It is imperative that everyone in the family collectively makes efforts to reduce the household expenditure and increase the family income.
Follow the budget:

Simply making a new budget will bring no results if you and other family members don’t follow it diligently. Keep tabs on each other’s expenses to ensure that no body is spending out of line. Fines and penalties should be charged on those who spend more than the preset limit. At the same time, you must also acknowledge and celebrate when the limit for the household budget is not violated and the targets for a particular month are met. This will motivate and encourage you and your family members to follow the budget and meet your financial goals with ease.
Review your budget:

The first time you make a budget you are likely to miss out on certain incomes and expenses, which you might realise later. Hence you must review it to make sure it displays a realistic picture. Moreover, it is imperative to keep reviewing your budget every few months to incorporate any changes in lifestyle, income or finances.

Most people are stressed mainly because their finances are in total disarray. PersonalFN is of the view that effectively managing your household budget will not only help you get your finances back on track but may also save money for emergencies and meet the financial objectives of the family.