While businesses turn to expense management software such as ExpenseIn to help them keep a grip on their expense management processes, for the home all that is needed is a pen, some paper and a calculator.
The Basics – Step by step
Step 1 – Information collection
The key information you need to create a well-balanced and accurate budget is your regular monthly income and expenses.
- Income for the household, it’s worth noting that it should be dependable income, not one-time cash injections – so, for example, selling something is not part of your monthly income, but your salary is. If your income varies, estimate an average so that you have something to work with. Write this down on a sheet of paper, and round down to the nearest hundred; this will give some room for manoeuvre.
- Specify expenses; this is any re-occurring expenditure you are expected to make every month. Rent, insurances, groceries, utilities, school fees, petrol, medical costs, eating out/entertainment (including drinks) and any other cost that comes regularly is to be noted down here. If you are not sure how much some of the things costs, estimate, or note what you think you should spend. Include a portion into the categories “savings” and “emergency fund” according to how much you think you should save per month.
If you pay some fees and bills every other month, or per quarter/year, just divide the total cost with number of months of the cycle. Let’s say you pay £600 twice a year, that would then be listed as £100 each month.
Also write down any extraordinary expenses you may have, if they occur regularly, such as haircuts, presents, beauty treatments or house repairs.
Step 2 – Organising income / payments
You may wish to set up a separate expense bank account. This enables you to have one account solely for expenditures, while your salary goes into another – avoid attaching a debit card to this account.
Take the expenditure number from step 1, and set that up to automatically transfer from your salary account to your expense account. This way you have all your expenditures separated before you start making payments. When the bills come rolling in you know that you should have the required amount available.
For anything that you pay in cash (contrary to paying online), withdraw that money as soon as possible to keep in envelopes labelled with the type of expense. This can be anything from transportation costs to eating out/entertainment.
Step 3 – Keep track
You now have a basic budget and your payments organised. There is one more important step: keep track of your budget. To keep a better record of how much you actually spend, set aside a time each month where you go through your finances. Keep this up for at least 6 months, and adjust any numbers along the way. If everything looks fine, you are living within your means and all is well. And if not, there may be time to cut back on some of the expenses. With the overview that the budget gives you, you should clearly see where savings can be made.