A Guide to Managing a Household Budget

Money management is an important life skill that we all must learn. A lot of our life goals depend on how we manage our money. Let’s talk about this extremely essential life skill today.

Managing money begins with budgeting. The purpose of a budget is to decide where your money should go instead of wondering where it went. Despite our initial enthusiasm, we give up on the idea and put off organizing our home budget because making a budget can be complicated and time-consuming. Days and weeks pass, and we are still unsure of how much money we spent when, where, and on what. 

The major tasks are aiming, planning, executing, and saving money at the end of the month.  Yes, it is that simple; all you need to know is how to properly handle your income. Listed below are some tips for making a monthly house budget that is efficient and systematic.

1. Set short-term & long-term goals

A home budget is a collaborative task. Define your short-term and long-term goals as a family. Budgeting for your home only works when everyone's needs are taken into account. 

Discuss with all the members of the family about their needs and wants for the upcoming month and year overall. Incorporate the planning for all capital expenditures like buying a car, furniture, or a family trip, etc beforehand. Of course other expenses like education, electronic gadgets, and so on as well. 

Finalize the list of short-term and long-term goals unanimously as a family before moving to the making of the budget. Then, categorize these goals on the basis of their urgency or preference by the entire family. For instance: Primary and secondary goals or Most important and Important. The choices will be easier this way. 

2. Decide your ratio for income: expense: savings

Make sure you consider your income after deducting all the necessary taxes and debts (if any) for this ratio. The standard ratio recommended by financial experts, in general, is 50:30:20. 50% for needs, 30% for wants, and 20% for paying off debts. 

However, I believe there can be no standard way of budgeting when it comes to house budgets. Because every home is different. The number of members in the family, income of the family, age group of the family members, etc all play a vital role in determining a house budget. 

A family having children and elders may have to keep a higher ratio for needs in certain months for the education cost of children or the health cost of the elderly in the home. So, I'd say figure out a ratio that gets all family members' needs and wants to be met. 

The key here is to mark what works best for all and switch if it doesn’t. A lot of mobile applications are available for budgeting these days which can help you compare such factors. Track your budgeting patterns with the help of these apps and modify your ratio accordingly for the next months. 

3. Be a skilled spender

Online payments and Maha sale offers have made the habit of spending wisely very difficult. Teach your family members to stick to the spending limit of the budget and also the importance of negotiation skills, discounts, and bargains. These small habits, if observed by everyone in the family, can yield big savings.

4. Convert your savings into investments 

Today, the market offers a wide range of investment options for investors with varying levels of risk appetites. When you invest your money, you are assured of your future income and hence you enjoy what you spend in the present. Taking a little risk allows you to relish the pleasure of spending a little more. If you are confused as to where to invest and how and what options are available, what is the risk, etc. Watch this video. It shall answer all your questions satisfactorily. Know how to generate regular income from your investments.

5. Keep separate bank accounts for your income & expenditure

Open a joint or an individual bank account just for expenses. Transfer only the amount predetermined in the budget to be spent in the expenditure account every month. Track your expenses from it and limit your spending to that. 

Take a look at all your expenses from that bank account to better understand your spending patterns and behavior. Taking control of your expenses is a very powerful thing to do. Spending on something you don't need is like stealing from yourself.

6. Set aside a small amount for unforeseen expenses 

It is inevitable that unseen liabilities will arise, regardless of how carefully we plan our expenses. Not liability per se but unplanned expenses may occur like a health emergency, or a surprise visit by guests or spontaneously going for a short trip, and so on. Things like these can happen. Put an extremely small part of your income for such expenses every month but follow the discipline of not using it elsewhere. In the event it is not used, add the same amount to it the next month and so on, building a bigger reserve over time. 

By adhering to this practice, you'll ensure that your monthly home budget is not disrupted by any unforeseen expenses. Implementing your home budgets exactly as you planned will give you the motivation to stay focused on this system. 

Summing it up 

For all the youngsters reading this, please know that money management can build your future, and for all middle-aged adults please know that money management can change your present and certainly your future. 

By preparing a home budget, tracking it each month, and following it with all the dedication and discipline you can, you will be closer to achieving all your dreams. Baby steps keep you moving forward. Start small to achieve big.