The household budget
If you see these words and get a sinking feeling in your stomach, cheer up! We all tend to shy away from household budgets because we traditionally see them as ‘no fun’. However, they can be, if you know how to control them, rather than having them control you...
So, why not try rethinking your household as a well-run business, complete with a managing director, divisional managers and financial controllers. Plan a business forecast for the year and work together, as business partners, to identify how you can maximise your household income. End-of-year profits and a healthy surplus put a pleasant spin on household finances!
Household budgets have an image problem. Most of us see them as one of life’s miseries that stops us from doing things.
In a well-managed business, budgets have a much better image because they are used to ensure that specific things get done each year.
So let’s try and change the image of your household budget by using it to decide what you really can afford to do in the next 12 months.
This idea ties in with the benefit of deciding what your goals are for the immediate future.
A vital element of a business budget is to forecast what profits the business will make over a financial year. Your household can use a budget in exactly the same way – the ‘profit’ is your household savings for the future.
Just as every business needs profits to grow and do new things, the savings in your household can be used to give you all sorts of freedom in the future.
Remember, savings is not ‘dead’ money, it’s simply putting off some spending now for enjoyment later.
HOW TO DO A BUDGET
Print out our household budget and use these notes to help you do your budget. Alternatively, use the interactive budget planner.
Start with your income. Use your pay slip or last Tax Pack to work out what your household income was last year. Make a best guess at what you expect your income (after tax) will be this year and put that in the budget column.
Payments come in three types:
Fixed payments
The very first one of these in your budget should be savings. Put in what your superannuation and savings were last year, then decide what you need to save this year to get you on track for a pot of gold worth about 7.5 times your final salary at age 65.
Put that figure in your budget and don’t change it.
Other fixed payments are those that are very hard to change without making some major decisions about the way you live, e.g. mortgage, debt repayment, payment of rates, car costs, etc.
Variable payments
These are items over which you have some control and that can be quite different from month to month or year to year. It is an area where some opportunities arise for savings, e.g. food and clothing.
Discretionary payments
These are payments that are very much in your control and are often areas where the most choice is possible about how much is saved each month, e.g. holidays or takeaway meals.
Each month, add up the payments and deduct them from your income to show you the cash surplus or shortfall for that month.
Credit cards and store accounts can cause confusion. The best idea is to go through each month’s statements and enter the amounts from the statements into your budget against the items purchased, e.g. clothing, petrol, etc. Remember though, you have only paid for those items when you have paid the credit card or store account.
If this is your first serious effort at doing a budget, don’t worry if you don’t have all the figures. The really important thing is to start keeping track of what you spend each month and then you can be sure you have all the figures when you do next year’s budget.
SUMMARY
Think of a budget as the plan of what you intend to spend your money on each year, not as something that stops you from spending your money.
Remember that unexpected income or outgoings can come along every year. When they do, you can look at your budget and see what can be changed to allow for those unexpected happenings.
With a bit of practice, running a household budget can be fun. Given that you may be doing perhaps another 60 of them, it’s worth trying to make them enjoyable!