May 24, 2012
Setting up your own home budget is one of the most foundational steps you can take to gain control over your income and spending and put you on the road to financial success. ULCLis glad to offer help you set up a home budget that will act as a guide to making better decisions with your money!
What to Track
When setting up a home budget, the first thing you need to know is how much income you have to work with. Here are some examples of income sources that you should take note of and then add up so that you can get a number that represents only how much money you make per year:
- Income from a primary job, often calculated per hour or based on an annual salary
- Income from a secondary job, for example if you take on a temp job around holidays
- Income from rental properties
- Income from disability status, food stamps, or other various programs
Once you have your income added up for the entire year, it’s often easier to divide that number by 12 to calculate your total monthly income. Next, you’ll want to track your monthly spending. To do this, think of categories that truly and accurately represent where all of your money goes. Some common examples include:
- Monthly rent or mortgage payment
- Transportation expenses (including car insurance, bus passes, gas, estimated yearly repair or upkeep costs, etc.)
- Loan payments (including student loans, personal loans, etc.)
- Entertainment (including everything from lattes to transcontinental vacations, movies, HBO, base jumping, mani-pedis - anything big or small you spend money on for yourself that isn’t strictly necessary for survival but adds up fast!)
Now, once you have the financial value of these categories added up, that is your total monthly spending.
How to Track and Manage Your Finances with a Budget
Now that you have your total monthly income and your total monthly spending, subtract your spending from your income. How do they compare? If your number is positive, good for you! You can take that money and invest it however you see fit, just be sure to keep tracking it no matter where you put it.
If your number is negative, you need to sit and have a real heart-to-heart with yourself about your priorities and decide whether you want to try to make more money or see what expenses you can lower in each of your spending categories so that you are producing more income than you are spending.
Once you have an idea of how your spending compares to your income, you’re ready to create your budget and continually track your finances to keep yourself on the straight and narrow that leads to financial success.
There are plenty of financial tools and programs to help you, but at the simplest all you really need is to keep an updated list of exactly what you have to spend and be sure that you set aside exactly that much of your income to cover the cost. That’s what budgeting is.
If your income changes, update your list. If your mortgage changes, update your list. When you spend money, decide what category you’re spending from and make sure you don’t spend more than you’ve allocated for the month in that category.The entire point is continual awareness so that you are not spending more in any spending category than fits in the budget.
Over time, you’ll notice trends. You may find that when winter comes, you spend a lot more on coffee and hot chocolate than you do in the summer, and you can make some choices that keep your money in your account - like taking advantage of a sales on hot cocoa starting in September so you can have it on-hand at home for much cheaper than stopping at Starbucks each chilly morning in December.
Setting up a home budget is extremely beneficial and well worth the time it takes to do it! If you are looking for some wiggle room in your budget and are willing to track where your money goes, it’s much easier to find where you can save money toward your goals and improve your life in ways that matter to you more than lattes!
For more information about how to better manage your money, be sure to explore our Money Matters blog! If you have any questions about the world of lending, be sure to contact your local ULCLoffice to speak with one of our lending specialists about how we can help you reach your goals.