One of the most challenging but important steps is creating a healthy household budget to help guide and monitor your spending. Unexpected medical bills, car and house repairs can throw you for a loop and cause financial stress. However, by following a few best practices for smart spending, you can better anticipate challenges and stay on top of your finances even when unexpected expenses do occur.
First, let’s consider why household budgets fail. Here are some of the most common reasons.
- Unrealistic plans — If you want your budget to work, you need to be realistic about your spending. For example, if your bank statements indicate that you typically spend $600 a month on groceries for a family of four, then cutting back to $550 a month can be a realistic goal (saving you $50 a month). However, if you set unrealistic goals (let's say spending only $400 a month on food), you're just setting yourself up to fail.
- Failure to track expenses — Creating a written budget means nothing if you ignore the predetermined limits that you've set for yourself. After all, isn't that the very reason why you created a budget? To ensure that you're staying on track, consider taking the time at the end of each week to add up your purchases or totals in each category.
- Failure to include all expenses — If you're not including all of your monthly expenses, your written budget isn't going to work as anticipated. You must be able to plan for almost any expense that will come up during any given month. For example, you may have budgeted for gasoline expenses each month, but what about oil changes? And don't forget about services such as haircuts for the family and medical copays for office visits and prescriptions. Be sure to factor in irregular payments that may include quarterly insurance or tax payments, or annual birthday gift expenditures.
With these common pitfalls in mind, here are some considerations to help maintain a healthy household budget.
Pay more than the minimum on your credit card — If you maintain a balance on your credit card, making minimum payments each month is doing you little good. If you find that you are continually paying only the minimum each month, you’ll need to get your balance under control. Consider starting small by committing to an extra five dollars or rounding off to the nearest hundred, you’ll find it easier to recover from potential spiral.
Set a credit card payoff date — Credit card debt can easily spin out of control if you don’t have an idea of when you’ll be able to pay back your debt. By setting some type of payoff date, you’re actually setting a timeline for yourself to meet. This can give you some peace of mind knowing that you have an attainable goal that’ll get you that much closer to being debt free.
Leverage credit card perks — If you're under-utilizing the free perks you receive for simply using your credit card, you could literally be throwing money away. If used wisely, these three types of credit card rewards might help your household budget. Many credit cards offer cash back, travel rewards or gift cards toward your favorite stores. Those perks can add up!
Avoid overdraft and late fees — No matter how diligent you are about creating a budget and balancing your bank accounts, you sometimes get hit with unexpected overdraft fees that can wreak havoc on your monthly budget. Consider putting some extra money in your checking account but keep it out of reach. That way, you have a little unaccounted money rolling around that could help you avoid a bounced check and consequently, overdraft fees.
Create a budget calendar — Creating a budget calendar can ensure bills are paid on time and avoid unnecessary late payment fees. Rather than leaving the bulk of your financial life attached to the fridge or in an ever-growing stack, store that information in digital calendar such as Google Calendar or Apple iCal, and be sure to mark each bill’s due date as recurring. Now you can schedule as many email or pop-up reminders for each bill’s due date as you deem necessary.
Find ways to reduce homeownership expenses — Maintaining a home can get expensive quickly. While investing in repairs and some upgrades can also be an investment in the value of your home, make sure you prioritize needed repairs over “nice to haves” such as furniture or landscaping. Approach spending wisely. For example, to save on lawn care, consider planting native, low-maintenance perennial plants that return season after season, instead of annuals. Or invest in a rain collection barrel to capture rainwater to water your lawn instead of spending on a sprinkler system. Get creative to think of small ways to reduce homeownership expenses.
Reduce your housing expense — If you find that homeownership is becoming a money pit, you may want to consider investigating alternative housing options. Options that could reduce your housing expenses include renting instead of owning. This eliminates the inevitable expenses that come along with owning a home. If you prize home ownership but simply find the expenses mounting, another option it to consider downsizing or making the shift from a single-family home to a condo to reduce your monthly mortgage payment and some other expenses like lawncare.
It takes some effort, but taking control of your household budget is a wise step to help ensure a healthy financial future. If you feel that you may need some help getting things back under control you may want to contact a reputable credit counseling service to explore your options.
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