Calculate Your Net Income Cut Your Spending – Balance your Household Budget
Posted by Tom Craig in Personal Finance
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When you’ve set a tentative target for each category, subtotal the income and expense categories and subtract the total expenses from the total income to arrive at your net income. This will be the amount of money you have left over for building an emergency fund, making additional payments on your credit cards, and working on your other financial goals, assuming you’ve recorded all of your income and expenditures accurately. If the number is negative, your expenses are greater than your income.
Don’t be discouraged. Your situation can no doubt be greatly improved by tweaking your spending habits. If you have a positive net income, be sure to transfer most of it to a savings or investment account at the end of each month. Extra cash left in a regular checking account has a way of getting spent.
Where Is Your Money Going?
In addition to bills, credit card statements, and receipts, your checkbook register will be important in completing the expense portion of the worksheet. Go through these documents and jot down your expenditures in each of the categories you’ve set up, then total the numbers in each category and transfer them to the worksheet. For the items you identified that aren’t paid every month, calculate the yearly cost and divide it by twelve to get the monthly cost for your budget worksheet. Each month, set aside the monthly amount in a savings account so it’s available when the bill becomes due.
To really get a fix on where your money goes, you’ll need to keep track of your cash expenditures, too. Save receipts to record later or jot the expenditure down on a notepad as you use cash. The more often you use an ATM, the more important it is to write down your cash expenditures, because this is where many people lose control of where their money goes. Tracking your cash expenditures is one of the more tedious aspects of budgeting, but it’s where you have the most potential for budget leaks, and it can be shocking to discover how much cash slips through your hands each month.
Set Spending Goals by Category
Once you feel comfortable that you know where your money is going and you’ve identified some ways to cut costs in a number of categories, establish a monthly spending target for each category.
Do your fixed expenses first, such as your mortgage End car payment. Learn how to try and reduce your cots on seemingly fixed expenses, but for now let’s assume that your mortgage, car payments, child care costs, and taxes are fixed. Look at each of your remaining budget categories and set a spending target, taking into consideration what you know about your own spending habits and where you can cut back without causing a hardship.
Once you’ve reviewed your spending and identified some small spending leaks that you can plug fairly painlessly, start looking for the larger budget leaks. Review items such as your mortgage, car payments, taxes, and insurance policies. The most painful cuts will be those related to your personal habits and hobbies, but these areas often yield the biggest savings.
Shop for long distance telephone deals twice a year. Long distance companies are constantly changing their plans, and you could save a chunk of change if you make a lot of long distance calls. Be sure to read the fine print and ask specific questions.
These are just a few ideas to get you thinking about how you can cut costs. As you go through each item in your budget and on your Net Worth Statement, you’ll find others. Question everything and look at things from a different perspective. You may save more by coming up with a number of ideas for small savings than you will by trying to reduce the large expenses.
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