Accurate budgeting starts by identifying every category of expense, no matter how small the annual expenditure on the item might be. Underestimating your expenses means that, at the end of the month, you'll have less money than projected in your budget, and you won't have the funds to put into savings or to pay down debt. It's not a challenge to include the obvious monthly obligations, such as your rent, car payment, insurances and utilities. All you have to do is go through your bank statements. What often gets overlooked and throws your budget out of whack at the end of the month are daily expenses. Keep track of every penny you spend and note what it's for.
You might think that the need to replace the alternator in your car is an emergency and an unexpected ding to your bank account, but regular auto, home and health maintenance should be part of any budget. You pay your health insurance every month or it's deducted from your paycheck, but you also need to budget for whatever items are not covered by insurance such as deductibles and co-payments. It's also wise to put part of your income away to replace and repair appliances. Michael Solari, a certified financial planner at Solari Financial Planning, LLC, says, "What I see people fail to do is account for big purchases that occur once a year. That may include life insurance premiums, car maintenance/registration and especially in my case, wedding gifts. My wife and I are in the stage in our lives where our friends are getting married and we budgeted an approximate amount we thought we would spend. This helped us from being overwhelmed when those dates approached."
Another problem is not understanding what your available cash flow really is -- counting available consumer credit lines as available cash. Ken Rupert, strategic personal development and financial stability coach with The Vita-Copia Group advises, "Living below your means does not mean spending less than your credit limit. It means spending less than your net income." He recommends dividing a household budget into a priority hierarchy that includes obligations, such as taxes, necessities, such as food, clothing and shelter, and commitments, such as debt payments. The last categories in the hierarchy are wants and desires, which Rupert says are "those things you can afford without using consumer credit to attain."
Saving for the future should be a primary goal of any household budget. Start with a reachable goal such as saving 5 percent of your take-home pay and work up to 20 percent, after you've paid off your consumer debts. Pay your savings account just like you would a monthly bill or have it taken out of your paycheck and deposited in a savings account. Gene Natali, Jr., senior vice president of C. S. Mckee, says, "It's easy to spend money. Saving for needs and obligations must determine your spending. And, yes retirement is one of those needs, and it can be as simple as starting with $1 or $3 a day when you are young."
A budget is more than the numbers -- income and expenses -- it is an action plan for gaining control of your finances. As you look at major expense categories such as food and household items, determine whether your current spending level is really necessary. For example, making a grocery list and sticking to it can significantly reduce food costs. Consolidating your family's mobile devices into one contract under one service provider may be less expensive.