Whether you are trying to build credit, pay off student debt, or are looking to buy a house or condo, having a personal or household budget in place for your finances is a smart move.
What is a Personal or Household Budget?
A personal or household budget is calculated over an allotted time (usually monthly) and reviewed and updated periodically with the goal of your spending and saving not to exceed your earnings. Your budget includes the net income you receive from your regular paycheck, as well as side gigs, gift funds, item(s) sold, government payments, and more. You can add your housing, utilities, food, clothing, entertainment, debt repayment, etc. together to determine your expenses.
By analyzing your past earning and spending habits, you can create a financial plan that focuses on how your dollars can be maximized for efficient spending and saving, while addressing any debt.
How Do You Create a Personal Budget?
Creating a monthly personal budget can help you keep your finances consistent and on track. While its economical to live within your means, making a budget ensures that your bills are paid on time, helps you save money, and creates awareness of how much money you can spend on things other than general living expenses.
What Should Be Included in a Household Budget?
To create your budget, start by dividing a paper into four columns. In the first column make a list of all bills you must pay monthly. This list needs to include every bill you must pay monthly or bimonthly. Include the due date of each bill as well as the minimum amount you must pay on it each month. You can start with your largest amount at the top and work your way down to the lowest payment or you can organize it in sequence by due date each month.
Be sure to include rent/mortgage, student debt, cell phone, insurance, credit card, utilities, medical bills, and any other recurring bills you might have.
The second column should be a list of expenses that may not be recurring each month such as haircuts, or vehicle maintenance costs. These things shouldn’t be immediate necessities but take precedence over splurge items.
The third column should be costs that you want to splurge on for the month such as entertainment.
The final column should be a target number for how much you want to save that month. Although the savings amount can be lowered during tight months, you want to treat this number just as you would a bill. If you hold yourself accountable for this structure each month, you may potentially see your savings grow.
Having this visual will help you map out your budget and show you how much you save and spend after all your bills are paid.
How do you create a budget for a beginner?
If you're looking for a quick way to get a glimpse of your monthly finances, a budget worksheet is worth a look.
Put that Budget to Work
Once you've taken the time to create your household budget it's important that you enforce it. Every member of the house should be on board with the budget plan, whether your spouse or child. This sets the limit on carefree spending by each member. As an added bonus, enforcing a budget with children can help teach them great savings and spending habits throughout their lives.
Shop smarter and plan ahead. Having a concise shopping list will always help you stay focused on the items you truly need. This is especially important if you'd like to cut the amount of money spent regularly on your grocery shopping. If you are mindful of only buying the items you need, you will be able to stick to your budget.
Step away from the credit cards. If paying your credit cards off is a goal you have this year, then make sure you stick to the monthly payments and don't reach for plastic when you want something outside of your budget.
Saving to Purchase a Home
Never underestimate the power of being thrifty. A dollar put away here and there can really add up over time. Here are a few ways you might be able to save money:
- Deposit your tax refund into your savings account: With tax season upon us, this is particularly relevant. If you are receiving a tax refund, saving it may prove helpful in your eventual homebuying efforts.
- Ask for a raise: If the timing is right and you can make the case, consider asking for a raise. If you get the raise, continue to live off your previous paycheck and put aside the additional funds from your raise into savings.
- Take on another job: Do you have time to take on a side hustle? If you do, opportunities await. Whatever basic or unique skills you have could be worth some extra money. If you are able to tuck away that money in a savings account, you may be on your way to saving for a home.
- Ask for assistance: Many people accept the gift of a down payment from a friend or relative when saving for their home’s down payment. If there’s a gift-receiving occasion, make it your policy to ask for cash as a gift and watch your savings grow.
- Look into DPA: Are you aware of what down payment assistance (DPA) programs your city or state offers? Do some research and see what options may be available. A New American Funding Loan Officer can help determine your eligibility, as well as any possible grants and non-repayable loans.
Achieve Your Goals, Reward Yourself
You work hard for your money and sticking to a budget can take discipline, especially if it’s your first time making a budget.
Just like a strict diet, you should always leave room to reward yourself. If you are able to reach a savings goal, have a little bit of extra money to spend that month to put towards something you've had your eye on. Just like a savings goal, you can make a list of things you would like to work towards purchasing. Things that you need should always take precedence over things you want, but don't forget to splurge on something special once in a while.
Ready to Buy a Home? Give New American Funding a Call!
New American Funding can help you take your hard-earned dollars to buy a home or refinance your current mortgage. Our helpful team of Loan Officers is standing by and ready to assist.