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If you want to reduce your financial stress and overall net worth then it pays to figure out your finances with a household budget. The purpose of a household budget is to figure out how much money you have coming in and where it is going out on expenses. Now you are armed with all the information it’s time to make some changes to achieve your goals.

Follow these simple step by step instructions to creating a budget for your household.

1: Calculate Your Incomings: This should be fairly easy. You need to calculate your typical incomings per month from all sources pay checks (after tax), bonuses and dividends from any investments. If there are some payments you only get once or twice a year such as bonuses then average that figure out over a year to give you a typical month.

2: Calculate Your Outgoings: Calculating your outgoings is a little bit more complicated as you spend money in far more ways than you earn it. Go over your statements for your bank account and credit cards for the past few months and figure out how much you have in outgoings each month and where it is going. Transactions made using credit cards or debit cards may be easier to keep tabs on but it’s hard to see where cash withdrawn from ATM’s has ended up. A simple way to track your cash spending is using creating a spending diary in a notepad and jotting down everything you spend money on each day such as lunch and coffee at work and anything else you spend. Hopefully you will find your typical outgoings are lower than your incomings but often this is not the case. You may be surprised to find your outgoings are higher than you incomings which means you will be going deeper into debt each month which is not sustainable.

3. Classify Your Outgoings: Once you have worked out all your outgoings it makes sense to classify them together into categories such as groceries, utilities, clothes, entertainment, loan repayments, travel and so on. Doing this will let you see where most of your money is going.

4: Sort out the essentials, the nice to haves and the not required: Now you can see where your money is going then you need to decide what can be changed. You may find some of the expenses are fixed and cannot easily be changed such as rent or mortgage repayments, car registration and so on. If you need to make large cutbacks then perhaps even these items could be reduced by downsizing your home. If you don’t want or need to go to such lengths as moving home then you need to seek other areas for cutbacks. You can reduce your monthly bills in lots of ways such as becoming more energy efficient around the home, switching utility companies, using VOIP for calls via broadband or cutting out pay-TV packages. Common areas for cutbacks are reducing your entertainment and shopping expenses for items such as dining out, buying music, clothes and so on.

5: Make Goals: You should now have figured out what you are spending and where you can make cut backs. You shouldn’t be aiming to create a budget just to survice on; you should be looking to have spare money to increase your net worth each month. A couple of methods of boosting your net worth is by slashing your debts or by increasing your savings. If you are in debt then the goal should be to get out of debt as soon as possible. Set goals for how much you want to pay off per month and build this into your budget. Once you have paid off debts then the focus can become on saving money each month via a high interest savings account. High interest savings account products have high interest rates and accumulate quickly when you make regular monthly deposits. Your goal shoudl eb to improve your financial situation every month and prioritize debt reduction, savings and investments to reach your goals faster. There are many other options for additional money in your budget such as investments in property and so on.

6: Keep Yourself in Check: Make sure you keep reviewing your budget and looking for areas where you can make further trimmings and savings. Don’t forget that a budget is not just about managing to get from one pay check to the next but should be a long term plan to improve your financial wellbeing.

Article provided thanks to www.compareyourbank.com.au which compares bank products and savings products including Visa credit cards. Visitors can then apply online for any featured products direct with the banks.

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