The 5 Numbers To Know To Manage The Budget Better

Girl in deep thoughtConsumers who deals with finances everyday has a common goal of being able to manage the budget the best way they can. There is no one solution to achieving this objective and a lot of people have had different success levels using various approaches. Some could have just listened and used the same strategy their parents did while others looked to get professional help from financial experts.

According to BLS.gov, the average annual household expenditure in 2013 was estimated at $51,100. This is a big amount for any household to carry but a lot of consumers doesn’t really realize this amount until after year end. For those that regularly maintains a detailed household budget, they might come across this amount when they start to total their annual expenditure.

In hoping to manage the budget better, consumers look at different ways and try to make use of different tools and programs to get a handle on their finances. Some look at some strategies for debt management while some are more concerned in bringing in a bigger income into the budget. There are also some consumers who just needs to use a proper budgeting technique to have a clear picture of their income and expense ratio.

As consumers strive to control and excel in their budgeting skills, there are some common factors to consider when trying look into your budget. Just like in sports, one way to manage the game is to know the important items. If you want to be better in golf or even basketball, you need to know the the crucial things in the sport to excel.

Same with finances, one way to manage the budget a lot better is to have a keen understanding of some of the key areas involved in the process. Do not try to take in everything all at once because there is a chance that you will feel overwhelmed and stop before you have made any headway. You can filter all of them down to the most important things and start from there.

Get a handle on these numbers for better budget management

When it comes to your budget and even finances in general, there are five numbers that you must know in order to handle your money better. You need to understand the importance of these numbers, how to determine these numbers in your budget and more importantly, the role they take up when you are trying to manage the budget better.

  • Your monthly income. This is by far the simplest one in the group but surprisingly, a lot of consumers are unable to accurately pull out this number. A lot of people would be able to approximate their income and even then, they would have a hard time separating the before and after taxes or more commonly referred to as gross and net pay. You need to know this amount and it is as simple as looking at your salary statements from work. It should have these details clearly on the statement and you can go from there.
  • Your monthly expenses. This is a little harder to come by because you need to sit down and look at all your expenses and list them all down. You can do it everyday listing down all your expenses or sitting down once a month and listing down all of them from your statements. The idea is to be able to manage the budget more effectively, you need to know your income as well as expenses.
  • Your credit score. There are lot of ways to protect your credit score and it is a great financial practice to follow tips to do just that. But before you do that, you need to determine what your credit score is to have a feel of how lenders perceive your financial habits. If it is low, find ways to increase it and if it is already a good number, be conscious in maintaining your standing.
  • Your net worth. Investopedia.com explains that net worth is ideally the amount where your assets exceed your liabilities. This number is another snapshot of your financial standing and can help you manage the budget more efficiently. The way it is computed it you total all your assets like investments, your house and even your car. And then you take away all your liabilities like loans and debts and you get your net worth. You need this to be a positive number and if you get a negative one, find ways to reverse it and maintain or increase that number.
  • Your investments. You might not think too much of it because you might not be into stocks or bonds investment. But one of the most simple investment tools is your retirement fund where for most consumers, is automatically deducted from their pay every month. To manage the budget better, you need to know how much you have in your 401(k) and other investment tools. This can help you make informed financial decisions when the need arises.

What to do when you are in deep debt

For some consumers, managing their household budget is a lot tougher because of all the debts that they are repaying. RT.com explains that as a country, we are $60 trillion in debt leaving a lot of consumers too consumed with the repayment that it is all they think about leaving a lot of room for error in the way they handle their budget. Here are some ways to help you deal with debt.

  • Review your monthly budget and identify the problem. This should be the first thing you need to look into because your debt could have accumulated over a long period of time or you might have made a big-ticket purchase in your budget. Identify the problem by visiting your household budget.
  • Assess your financial habits to address areas of concern. To manage the budget and even debt better, you also need to look at your financial habits and address the ones that are detrimental to your finances. If you are easily swayed by sale events in the mall, it might be best to stay away from these shops to prevent unnecessary and unplanned purchases.
  • Consolidate your debts to manage the payment schedule. Combining and consolidating debt is a great financial move because you streamline your payments under one account. This lowers the chance of overlooking any payment and incurring any fees or late charge penalties.
  • Learn from your mistakes and stay away from debt. After you have assessed your mistakes, you need to make sure that you try and stay away from them to manage your finances better. Look at developing your developing your financial weaknesses and harping on your strengths to improve your budget and finances in general. It is also important to make sure that you have an emergency fund to speak of in case you hit some unexpected snags along the way.

In order to manage the budget better, you need to understand the basic numbers that makes up your budget. From the income to the expense all the way to net worth, you need to understand these basics to make sure that you have a good grasp of your budget.