Keeping Your Household Budget in the Black

I’ll admit, I not the best at managing my finances. Money just seems to disappear from my wallet as quickly as it appears. I blame it on my school days. Despite preparing us academically for life, I can’t remember taking classes on how to budget your money. Or rather I do, but slept through them. Which pretty much sums up what most people think about money matters.

Yet being good at budgeting is a necessary life-skill and though my treasured and hard-earned MBA has never really benefited me as a writer, I’ve decided to put some of it to good use and try and become better at managing my finances.

The Balance Sheet

Essentially there is little difference between running a business and running a house. Both have incomes, and both have expenses. The key to better budgeting your income is knowing exactly what expenses you have. It’s common-sense. If your expenses are greater than you income – you go bust!

The first step to managing your family finances is to draw up a balance sheet. Take your time and try and list all your outgoing expenses. There are two types of expenses: Fixed and Variable. Fixed expenses are those that must be paid on a regular basis. Examples of these include:

• Mortgage payments

• Gas/Electricity Bills

• Credit card loans

Variable expenses are those that, if push came to shove, you can take action to reduce. For example, do I really need to subscribe to six magazines a month when I only have time to read two? Do I really need to eat out or get takeaways three times a week? Can I live without buying that high fashion accessory every month?

List everything you can think of before tackling the incomes. Compared to expenses, incomes are much easier to work out as many of us will only have one income stream with maybe a few extras throughout the year. Examples of incomes could include:

• Salary

• Bonuses

• Saving account interest

• Birthday/holiday money

If some of your incomes only appear on a yearly basis – such as work bonuses or interest on your savings account – try dividing last years amount by twelve and adding the total to the budget sheet.

The Reconciliation

With the balance sheet complete and the totals calculated we can now see how our outgoings stack up against our incomings. If it’s anything like mine it may not make pleasant reading. On the plus side however, we now have a clear understanding of where our money goes and be better able to make changes if necessary.

If changes are needed I recommend tackling those variable expenses. Start playing with the numbers and try different scenarios. For example, how does it change the bottom line figure if you reduced those subscriptions to just two magazines a month? What does your reconciliation look like if you stripped out all those takeaways and started eating at home more? More often than not you can find enough savings to balance the accounts by just cutting back a bit on these luxuries.

If however such culling brings little joy, you may need to tackle the fixed outgoings. Hang on, didn’t I say fixed outgoings needed to be paid come what may? Well yes I did but that doesn’t mean we can’t make some adjustments. For example, can we lower the cost of our domestic fuel bills by turning down the central heating or even switching suppliers? Can we use the car less and cut down on gas payments? How about removing your cable or satellite T.V. subscription? You still have to pay fixed expenses, but do you have to pay so much?

Of course, there are times when nothing we can do can put our household budget in the black and that’s the time to get professional advice. More often than not however, just spending a little time drawing up a balance sheet can often be all that’s needed to spot where our money goes and help us readdress the balance.