I can’t believe it is February already. The past month has been a blur, and I haven’t set yearly goals yet, as every time I try to write down something, life gets in the way. That is how you stop watching your finances and wonder why there isn’t anything left at the end of the month… Not good! So today let’s all get into financial shape for the new year and talk about how you can plan for your monthly household budget. It is less scary than it seems, you just need to figure out what is coming in, and what is going out every month.
Expenses and other money out
There is the money that goes out every month like clockwork: your rent or mortgage, insurance premiums, broadband and cell phone bills, gas and electricity, service charge for the building, etc.
There are also the expenses you need every month, but whose amount can vary: food, hygiene, transportation.…
Then there are the things you pay once in a while, but that are still recurring expenses. For example, if you are planning to study for an MBA at a university such as London School of Business and Finance, divide that by 12 and put that amount into your spreadsheet. Going back to school to get an advanced degree will be great for your career, and hopefully that expense today will result in more income shortly, whether you decide to leave your job for a better one or ask for a raise at your current company.
Finally, you have the expenses you don’t expect, that you still need to plan for. Those are things like car repairs, upgrading the roof, the washing machine or the boiler after a harsh winter…
Once you have summed up all those expenses, you can see if there is any money left at the end of the month. No? It is time to look into ways to make more, as we have barely covered the necessities here!
Yes? Good job! Now you can decide where you want to allocate that money. Part of it should go to short term savings, to cover things like holidays, gifts, nights out…
Another percentage of your leftover money should go to med term savings, to replace your car when it dies, or to buy a big ticket item.
Another chunk should be dedicated to long term savings, like putting down a deposit for a house, paying for your kids’ education or saving for your retirement. Don’t plan on touching that money for years!
Income and other money in
If you get your past few pay slips, you should be able to figure out your average pay, including bonuses and other company perks (free healthcare, transportation vouchers…).
- Rental income
- Dividends from stocks and investments
- Interests from savings accounts
- Child support
- Income from second job or online income such as this blog
- Gifts from parents
Now it is time to analyse where that money goes! A good way to then implement your household budget easily is to automate most of the payments. If on payday you send automatically money to all those savings accounts, pay your rent and recurring bills, and are only left with your food and basic needs money, then you will learn how to make it last until the end of the month. If you go the other way around, leave everything on your current account, and expect the money to stay there until the end of the month, you may have some surprises. So let’s start the year strong and automate it all! You won’t miss the money you don’t see.