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If you are looking to get your finances in order or reduce your debts then you have to get back to basics and the best place to start is with a household budget. The concept for a household budget is to work out how much money you have in comings versus what is being spent and how you are spending it. You can then look for areas to make changes to reach your goals.

Follow these simple step by step instructions to creating a budget for your household.

1: Calculate Your Incomings: This should be quite simple. You need to calculate your typical incomings per month from all sources pay checks (after tax), bonuses and dividends from any investments. Don’t just consider your pay for the last month, you should bear in mind occasional payments such as bonuses or dividends from investments and then work out the average value of these per month (over the course of a year).

2: Calculate Your Outgoings: Calculating your outgoings is a little bit more complicated as you spend money in far more ways than you earn it. Go over your statements for your bank account and credit cards for the past few months and figure out how much you have in outgoings each month and where it is going. Transactions from debit cards or credit cards may be easier to keep tabs on but it’s hard to see where cash withdrawn from ATM’s has ended up. It may be a good idea to keep a spending diary with you for a couple of weeks to take note of all your cash spending. Hopefully you will find your typical outgoings are lower than your incomings but often this is not the case. If you find your outgoings are higher than your incomings then you are pushing yourself into debt each month and need to take action to reverse this trend.

3. Classify Your Outgoings: Once you have worked out all your outgoings it makes sense to classify them together into categories such as groceries, utilities, clothes, entertainment, loan repayments, travel and so on. Doing this will let you see where most of your money is going.

4: Sort out the essentials, the nice to haves and the not required: Now you can see where your money is going then you need to decide what can be changed. There may be some expenses on there that you feel cannot be changed such as rent or mortgage payments, insurances and so on. If you need to make large cutbacks then perhaps even these items could be reduced by downsizing your home. Assuming however that you are not looking for such drastic measures then you need to find other places to make changes. You can reduce your monthly bills in lots of ways such as becoming more energy efficient around the home, switching utility companies, using VOIP for calls via broadband or cutting out pay-TV packages. Common areas for cutbacks are reducing your entertainment and shopping expenses for items such as dining out, buying music, clothes and so on.

5: Make Goals: You should now have figured out what you are spending and where you can make cut backs. You need to make sure your monthly budget not only gets you through the month but also puts you in a better financial situation each month. Two ways in which this could be done is by reducing debts or increasing your savings. If you are in debt then the goal should be to get out of debt as soon as possible. Set goals for how much you want to pay off per month and build this into your budget. Once you have paid off debts then the focus can become on saving money each month via a high returns savings account. You will find that when you make regular payments the interest will start to accumulate with high interest savings account products. Your goal shoudl eb to improve your financial situation every month and prioritize debt reduction, savings and investments to reach your goals faster. There could also be other uses for the money such as investing it in shares or managed funds.

6: Keep Yourself in Check: Make sure you keep reviewing your budget and looking for areas where you can make further trimmings and savings. A budget is not a survival plan, it should help form your long term financial roadmap to keep your debts down and investments on the up.

Article provided thanks to www.compareyourbank.com.au a consumer finance comparison site including online savings accounts. Visitors can then apply online for any featured products direct with the banks.

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