What is a Household Budget?
Isn’t it just taking care of basic necessities and then making sure there is money set aside for entertainment? No, not at all. You see, that’s how people get mired in debt. Most people get money and then spend that money right away. What comes in must go out. Individuals are consuming every penny they make–and sometimes more than that, as they are juggling high interest credit cards and other debts.
As a matter of fact, a household budget may be something you have thought of or avoided, even without realizing it.
A Household Budget will Help Reduce Debt
Your household budget is really a set of instructions that you as well as your family will follow in order to reduce your debts as quickly as possible. The faster you pay down and pay off all your debts, the sooner you can breathe easy while knowing you get to keep a lot more of the money you earned. But even more importantly–you will save a tremendous amount of money.
The longer your debts remain in force, even if you are making the payments against them on time, the more money you will have to pay in interest. Interest only accrues against outstanding principal debts, and it accrues according to percentages. So, the less outstanding principal balances you owe, the less interest can accrue. The faster you reduce all your debts, the sooner you will be able to stop paying interest.
By creating a household budget you are essentially creating a debt reduction budget. You are making sure that you are getting those debts paid down and paid off faster than you would without that budget. What that means for YOU is that you are saving thousands of dollars by cutting off interest accrual as fast as possible.
Benefits of a Household Budget
A household budget will help in reducing debt as well as assist you in organizing your finances. There are also many other great benefits, which include:
1. Building up savings as a safety net for unexpected expenses, lost job, or pay cut.
2. Giving you the ability to buy big ticket items with minimal or zero use of credit which gives you peace of mind
3. Assist you in long term savings to attain financially related dreams such as purchasing a new home, having enough money for a college education for your kids and a good nest egg for retirement.
How do I Create an Effective Household Budget
Believe it or not, you may think it can be time consuming to create your household budget but it is actually pretty easy.
Here is what you need to do:
1. Compare your current total monthly spending to your current total monthly income.
2. Reduce your spending where necessary so that your income, after taxes, is greater than your total expenditures.
3. Allocate your dollars appropriately so you are able to pay all of your basic living expenses and debts first.
Remember, the more you can pay against your debts without seriously changing your lifestyle, the better it will be for you. However, if you are in way deep over your head with debt, you might have to give up a few things that you’ve been financing, like that giant screen TV or entertainment system.
You may also have to find ways of increasing your income. Here are a few ideas:
1. Finding a second job that you can do from home on the Internet
2. Turn a hobby into some kind of business where you can get paid for your talented skills
3. Sell some of your items online at eBay or Craigslist
You have to be willing to take control of your finances, be discipline and as much as possible follow your budget consistently every month! As long as your household budget has you earning more money than you’re spending, it’s working for you.