How to Create A Home Budget on a Budget
When you have very little money to pay your bills, it is hard to create a budget. It is even harder to stick to it! So, how do you create a budget, when money is so tight it squeaks when you try to stretch it? Believe it, or not, tips and tricks exist to help you create a home budget on a budget.
Why You Need a Budget When You Have No Extra Money
Whether you have lots of money, or very little to pay your bills, there are benefits to creating a budget. Budgets give you control of how you spend your money, rather than allow your money to control you. Budgeting allows you to make informed decisions about where your money is going each month. Budgets allow you the ability to tell your money where it needs to go, and how it needs to be spent.
One of the most important reasons to have a budget is to ensure you are living within your means. Your income must determine your household budget since you only have so much money coming into your household. Another reason to create a home budget on a budget, is to have a tool to communicate finances with your family or spouse. Budgets also "provide early warning signs" to see when your spending is going off track. With early warning, you can make additional cuts, or look for ways to make extra money while there is time.
Another reason to create a home budget on a budget is to give you control over your life. When you know where each dollar is going, money no longer controls you - you control your money. When you have control over your money and spending, you feel confident. Self-confidence with your money enables you to handle life's problems easier
Steps When Making a Home Budget on a Budget
Budgeting is never really easy, especially if you don’t have a lot of resources to manage. But it is not as difficult as you might think. It’s just a matter of good organizational skills and sticking to what you plan out. Here are the steps for you to follow and make your home budget on a budget.
Gather All Information
Budgeting doesn't need to be complex. When starting the budgeting process for frugal living, you will need to gather your bills and other expenses, your net income, a pen, and a calculator. Alternatively, you can create a budget spreadsheet in Microsoft Excel or Google Sheets. If you create your budget in Excel or Google Sheets, it is much easier to create next month's budget and the one after as you can adjust it as needed.
Make a list of your bills and other expenses, their due dates, and any money you use for entertainment, or hobbies each month. Be sure to write down how much you spend every month on each line item you write down. Include items you spend annually, even if you don't spend money for them each month (gifts, car registration, and car repairs, homeowner dues, etc.).
Look At Your Income
Next, assess your earnings. Figure out all the net income you have coming in (money earned minus any taxes or deductions). Deductions include your health, vision and dental insurance and your retirement account. Whatever is left is your net income from your earnings - be sure to include the money received from residual income and investments.
The third step to create a home budget on a budget is to "subtract expenses from earnings". The resulting number is the amount of money you have leftover to spend or the amount of money you need to re-assess. If the amount remaining is a negative number, then you need to make some adjustments to make your budget work or try to negotiate your bills. If you can't negotiate your bills, then you need to increase your income. Perhaps, you can find a part-time job, sell items made from your hobbies, or find areas to eliminate for a while. One way to cut down expenses while raising your income is to get a roommate. A roommate can help you pay rent, utilities, and even groceries.
Categorize And Prioritize
Now that you have your spendable income and your expenses figured out, you need to prioritize your bills. The first thing you must do is figure out which of these bills are needs? Which are wants? Are there ways in which you can eliminate unnecessary spending? Your monthly rent or mortgage payment, utility payments, and car payments are definite needs. Other needs include groceries, medication, and gas to get to and from work. These are all non-negotiable items.
Other items such as streaming services, movies out with friends, and cable television are all wants. They are nice to have but "are not necessary for survival". When you have restricted income and need a home budget on a budget, then you must cut some "wants" out. Do you buy a cup of coffee every morning, impulse shop on the internet, or buy lunch every day? When you create a home budget on a budget, you must be sure you know where your money is going, so it doesn't go flying out the window. Sometimes that means sacrifices need to be made for a while.
An easy way to cut expenses is to look at your subscriptions. Are you paying for a music service? There are music services such as Pandora and Internet Radio that are free. In addition, if you have Amazon Prime, then you already have a music service – Amazon Music. Amazon Music, with 50 million songs to download or listen to online, comes free with Amazon Prime. If you don't use the 2-day shipping feature in Amazon Prime or its music, and book service, etc., then get rid of it. Another option is to cut cable and use an online streaming service, cancel unused gym memberships, or magazine subscriptions. When you are creating a home budget on a budget, sometimes you need to make sacrifices for a while.
Need Help Budgeting for Your Family? Welcome to Budgetry Store !
Figure Out Your Debt
If extra room in your budget exists, look for ways for debt reduction. It is best if you can pay more than the minimum payment each month on each debt. If you only have room to apply extra money to one debt, or minimum payments for all debts, then try the Snowball method. The Debt Snowball works - you just pay off your smallest debt first and then apply that money to your next debt. Once that debt is paid, you add that money to your next smallest debt. Each time a debt is paid off, the money that was paid on the previous debts is applied to the next debt. This creates a debt snowball with more and more money applied to debts until all debts are paid off. This is a great way to pay off debts quickly. A debt snowball calculator can show you how quickly you can be debt-free by sticking to your budget.
Add Savings
If possible, try to find a way to add savings into your budget. It is best if you can have some money sent to a separate account before you ever see your paycheck. You need to have savings for the little things that come up from time-to-time as well as emergency savings. While it would be ideal to save 10% of your income, even $10 per month is something. One way to save money, if you're able is to try to save 1% of your income per month, then the next month, see if you can save 2% of your income. If needed, it's alright to stay at 1% for six months or more. Eventually, you will be able to increase your savings to 2%, then 3%, etc. If you have too much debt, it's alright to skip this step until you can save something – anything helps! If savings right now is not possible, don't stress, just start saving as soon as you are able.
Stick To Your Budget
Once you have your monthly budget figured out, you will feel a lot more confident about how you spend your money, unless something comes up. For instance, leaving without your coffee might tempt you to buy one on the way; working late might tempt you to buy food on your way home. If you know how much money you have, you will either do without, or buy something that fits within the constraints of your budget. To avoid pitfalls that eat into your wallet, it is best if you leave your credit/debit cards at home. If you do not have plastic cards then you must either use cash, do without, or wait until you are back at home. Make sure you keep your budget and your checkbook current, so you know as soon as possible if you are getting off track. Ideally, it is best to budget with the 50/30/20 method—50% of your income to needs, 30% of your income to wants, and 20% to savings. This method helps you create an emergency savings account of three to six months of your earnings quickly.
Ensure You Have Created a Realistic Budget
If, however, despite doing whatever you can to cut costs, your home budget on a budget doesn't work for you, then you might have your budget too strict. When your budget is too strict, it can be almost impossible to maintain. For instance, if you want to pay off your $20,000 credit card within one year, you may be able to if you make $80,000-$100,000 annually. However, if you only make $40,000 per year, you likely won't have enough money to meet your household needs and pay that much debt in such a short time. If you have a lot more debt than money available, a debt consolidation loan might be worth considering.
Pay Bills on Auto-Draft or Bill Payer
One way to create your home budget on a budget is to set your monthly bills on auto-draft or have them sent out of your bank's bill payer service. You'll want to make sure your payments are made a day or two after you receive your paycheck, but before the bill's due date. Each paycheck will pay a different set of bills with money left for gasoline, groceries, and miscellaneous categories. Again, it is important to ensure that you don't make the time between paychecks too tight. Paying your bills using this method will make it easier to know when your bills are paid, and how much is coming out each month. This method can be made even easier using three bank accounts – one for spending, one for bill paying, and one for saving.
Ensure Your Budget Takes Social Events into Consideration
Don't allow birthdays, anniversaries, weddings, or any other social event to sabotage your budget. Ensure your home budget on a budget accounts for each of these expenses as soon as you are able. Buy Christmas presents throughout the year, so you don't have many to buy at once, or consider drawing names. Many families draw names so that they don't have to buy for everyone—this works especially well in large families. You can also look for free or very inexpensive items to give as gifts - gifts of time and letters or cards cost very little.
Buy Things on Sale Whenever Possible
Each year, kids need school supplies and school clothes. When you create your home budget on a budget try to prepare for them in advance. That way, when the sales begin you already have the money available. Each year school supplies and school clothes go on sale in August right before school starts. If you save for them, you can buy what your kids need without wreaking havoc on your budget.
Wait it Out
It's better not to buy something right away if you can wait for it. Most wants are impulse buys, and even if it is a need, you often don't need to buy it right away. Try telling yourself you must wait a day, week, month, or year to give yourself time to save. Oftentimes, by the time you have the money you find you no longer want the item. This method works well as you don't deny yourself from having the item, you just require that you save for it first. If, once you have the money, you still feel like you need it, buy it. If you no longer want it, you've just saved yourself from impulse buying.
Make a Grocery List and Stick to it, or Order Your Groceries Ahead and Pick Up
If you plan your meals, you will know what groceries you need ahead of time. Make a grocery list and stick to it, so you only buy items you truly need. When you're at the store and you're over budget, you're more likely to just spend the extra money in order to avoid embarrassment or holding up the line. If you are prone to impulse purchases or worry that you will spend too much on groceries, skip the store and buy groceries online.
Many grocery stores allow you to purchase groceries online and pick them up a few hours later at the store. This method allows you to save energy, money, and time. It also helps prevent duplicate purchases since you can look and see if you're out of milk or eggs instead of getting them because you're unsure. In addition, when you order groceries online, you always know your total. If you are about to overspend, you can make immediate adjustments to your order to stay within your budget constraints. After you pay for your groceries and wait for your allotted pick-up time, you just drive to the store and tell them you're there. Someone then delivers the groceries to you. Ordering online is convenient, efficient, and forces you to know what you are spending before you even enter the store! Ordering online helps to prevent impulse buys, and the extra purchases people often make when they're hungry.
Stop Wasting Money
Look for ways to save around the house - are you running your dishwasher or washing machine when it's partially empty, or totally full? Try to avoid food waste by eating your leftovers or freezing them right after dinner. When food is frozen before it's put in the refrigerator for 24 hours or more, it still tastes fresh when it is reheated. Freeze it in individually sized portions and you have a quick dinner or lunch when you don't have time to cook - just heat and eat! When the sun is out, open the blinds and try to avoid using the lights. Little expenses can add up to hundreds of dollars per year.
Conclusion
Whether you are trying to create a home budget on a budget, or you have a ton of money, budgeting is important. Budgeting helps you stay on track, know where your money is going each month, and keeps you in control of your finances. In addition, budgeting helps you pay debt faster, and build savings quicker. Budgeting also reduces or eliminates impulse buying and stops the money leaks that happen when we don't know where our money is going. Finally, budgeting helps us to get a better hold on our money, so we can live within our means.