5 Possible Reasons Why Your Household Budget Is Failing

Calculating The Household BudgetYour household budget is one of the cornerstones of your financial standing and a tool that guides you on your way to your financial goals. Investopedia.com explains that this is simply managing your income versus your expenses over a period of time. This is mostly done on a monthly basis because doing it everyday will just be too much and yearly will be too late.

The simplest approach would be to list down you income from all sources on one side of a paper and them on the other side, all your expenses. You need to be very detailed with both amounts so you can have a clear picture of your finances. Cutting short or bloating either your income or expense can make it look like you do not have enough money or you have more than what you actually have.

There are lot of tips to help you with you with your household budget but getting accurate figures on your income and expense takes top priority. You need to include all sources of your income whether it comes from your nine to five job, a second job or a hobby that you pursue over the weekend. You need to know how much you make a month.

With that, you also need to know how much your expenses are. This of course includes your living expenses like your food and utilities and even your rent or mortgage payment every month. It is also important that you include other debt payments like your student loans which according to NewYorkFed.org is at $1.19 trillion for the first quarter of 2015. This is usually the second biggest expense amount in an average household budget next to mortgage payment.

Pitfalls in your budget

As you try and get your budget together, it would benefit you to know some of the common pitfalls and problems consumers encounter with it. Knowing them helps you prepare and even counter the effects of these situations.

  • You have put in unreachable goals. If you are earning minimum wage but your goal is to pay off say your student loans in 6 months after your first paycheck and you do not have any other sources of income, that might be a little impossible. Regardless how much overtime work you put in or how much you save on food, if your student loan amount is bigger than your annual salary, then you are trying to do the impossible. It is important that you put in realistic goals and this is possible if you are able to plan out your finances using accurate numbers. If you know how long it will take to pay off your loans then go ahead and plan around it and adjust as you go along. At least you are working on a realistic goal and timeframe for your financial goals.
  • You compute on gross income. When you get an annual pay and compute for how much you have every month, you need to remember what your gross income is versus your net income. The former is what you will be getting before taxes and the latter is what you actually get. You need to compute your budget based on your net and not on your gross because your net income is what you can actually use in your budget. If you plan based on your gross then you run the risk of coming up short for payments on your expenses. Here is a video that aims to explain all about net income.

  • It does not work around your long term goals. Apart from making realistic goals, you need to make sure that your household budget is geared towards your long-term goals. You might choose to ignore your short-term goals or change your ways to reach your financial goals just to align your budget. The important thing is that your budget reflects your plans for the future. If your goal is to retire early then your budget should have your 401(k) and other investment tools as the main focus. If it is to pay off your student loans or mortgage loan as fast as possible then your budget will be funneling most of the extra funds into payment of those debts. You need to align your budget in order to reach your financial goal.
  • There are no elbow room in your budget. When you put together your budget, you might not be giving yourself a little wiggle room with your expenses and computing everything down to a dollar. Put in a little extra for a little take-out meal or for a movie every now. The idea is not to deprive yourself so much that you rebound one day and ruin your whole monthly budget. Have a little elbow room for some of life’s little pleasures so you get to live a little as well.
  • You fail to stick to your budget. When you are trying to lose some weight and your decide to follow a diet program, one of the most obvious culprits when you do not reach your goal is when you do not stick to your food intake. The same goes with your finances because when you put together a budget and you do not stick to it, chances are you do not reach your goals. When you have a plan and you do not follow through and stick to it then you are just wasting your time.

How to work around a small budget

When you are trying to make do with a small budget, it might seem to be an improbable task. It is easier to have a surplus on your income rather than your expenses eating every single dollar every month. BLS.gov shares that the average budget for a household is in the vicinity of $51,100. If you seem to be managing a tight budget, here are a few things you might want to look into.

  • Be creative with your spending.  Frugal living is one of the things that can actually force you to be creative when it comes to spending. Instead of bringing the whole family to an expensive dinner, why not cook for them and use your backyard to get together. It will be less formal and the children will not bump into tables as they run around.
  • Forget about any increase in income. The time will come where you get a promotion or a bonus in the office or even just a tax refund. Resist the temptation to use that money to fuel your wants and splurge until it is all gone. If at all possible, try to forget that you have an increase in your monthly income and automatically transfer that amount to a retirement fund or a savings account even before you see it on your bank account. If it is a bonus or a tax refund, transfer the money immediately to another account or use it to make extra payments on debt accounts.
  • Overlooking your monthly statements. When you are trying to put together a solid household budget, you need to be sure about your expenses and monitor them monthly. One way to do this is to look at your statements and see how you are spending your money. It will also help you guard against identity theft and make sure that your finances are not compromised.
  • Get the whole family to buy in. When you are trying to manage a tight budget, it becomes a little easier when your whole family buys into it. Your children will know that you need to save money and your wife can help plan expenses around that goal. Just like in a team sport, when everyone is on the play, it is easier to execute.

Your household budget is a vital tool in realizing your financial goals and you need to understand some of the challenges along the way. You can prepare for these challenges and tweak your budget to meet these problems head on.