What is a household budget and why have one?

Why is it worth keeping a home budget?

In every company there is an accountant (unless, of course, she has already returned from vacation) who keeps an eye on both income and expenses in the business. Sometimes there is also a financial advisor who suggests the best solution to the current problem that the business owner is struggling with.

They both want to achieve the same as you. Make the right decisions and generate surplus cash. This is how wisely managed companies work. You can transfer it to private land!

However, unless you are a multimillionaire, hiring an accountant to monitor the state of your family budget seems like unnecessary dramaturgy. You are able to do it yourself.

What will help you control your home budget?

• Earnings — The basis from which you count on how much you can afford or what you will have to give up. In addition to a fixed salary, there are also allowances, overtime, performance bonuses, quarterly bonuses, sale of antiques on auction portals, additional work, tax refund or anything else that is your income.
• Fixed expenses — The “sureties”, such as: rent, extra activities for children, internet bills, telephone, TV, etc., are the easiest part of the budget, because every month you pay the same amounts. Thanks to them, you will determine, albeit an approximate minimum amount of the cost of living. By the way, you will quickly check whether all obligations have already been paid.
• Regular Expenses Similar to the previous group. For example, food or fuel for the car. You also carry them every month, but these — they are always of different heights, and you can only determine them approximately.
• Irregular expenses — Fees that vary in amount each month, but not necessarily necessary for daily operation. These include, for example, going out to restaurants, movie tickets, books, etc.
• Recurring expenses Costs that you incur occasionally but are certain and usually occur in the same month of the year: third party liability insurance, car inspection, property tax, birthday gift for wife or compensation for underpayment for central heating. By keeping an eye on such costs, you will not only not forget about them and prepare the appropriate amount in advance, but you will also be able to check their amount year after year.
• Savings — How much you have left and what you want to spend on a specific goal. Maybe for a vacation, a language course or a new car? About why concrete is important in savings, you will learn from future materials.

As you can see, a budget allows you to control a lot of things that happen in your wallet even without your knowledge. A popular excuse for budgeting is “I know all this.” I am convinced that if I ask you a question about a specific zone, you will not be able to answer it for me. There's nothing wrong with that.

First of all, because we are just getting started and you will soon learn about potential cash leaks. Secondly, you strive to get this data out of your head and transfer it to the most convenient tool possible. This data is not supposed to overwhelm you and we will not pinch each other for every penny, because that is not what it is about.

What is a home budget?

Contrary to popular belief, writing down expenses is not the same as a home budget. Home budget is a tool for monitoring your own financial situation. It consists of planning earnings and expenses, their ongoing supervision and, above all, analysis and drawing conclusions from it. Only such a tension of everything allows you to make rational financial decisions.

Note that I used the phrase spending planning. A home budget is a plan for the future, not a passive record of the past. What most people manage is just writing down expenses, not a household budget. It does not in any way lead to increased awareness of one's own material situation. Of course, entering receipts into an application or sheet is very important. It is this action that allows you to determine how much you really spend. However, just listing the costs will not get you anywhere. You need more pieces of the puzzle for this. We will look at each of them in more detail in the following materials. A good home budget will allow you to achieve your financial goals faster and more efficiently!

What should a home budget be?

If you use this material on the MultiLife platform, you probably have access to it thanks to your employer. So there is a good chance that part of the day you are staring at Excel spreadsheets and the absolute last thing you want to do is sit at it for the next few hours to keep a budget.

You're not gonna do that with me. I stick to a few rules, thanks to which I spend less than 15 minutes a month on a budget. Of course, you will get acquainted with the specifics in the following materials, but for warming up - the budget should be:

• Simple to use - Choose the tool that suits you best - sheet, program, application. Download, test, delete and try another solution. The first choice is not always the best, and what others recommend may not be right for you. Each of us has different needs.
• Transparent - Dozens of functions can give a sense of more control, but also clutter up the program, which is especially annoying in mobile applications. Keep it simple and you won't give up after a week.
• Flexible - It's more about you than the tool. The budget does not always spin, and this is completely normal. Don't give up just because your assumptions clash with reality. That's what it's all about! Budgeting is about finding what is different from your predictions and responding accordingly.

That's enough for today. I am well aware that many people treat managing a household budget as a chore. You will see that it is possible otherwise, and I will not accuse you of unnecessary knowledge, because this is not a complicated topic at all.

To the next one!