As challenging as the times are today, it makes a lot of financial sense to create a lean household budget to help you manage your finances better. This is one step better than simply putting together a budget. Though that is a critical first step, you always need to be on the lookout on how to improve your finances and this is definitely one of them.
Just with anything in life, you always have to find ways to make improvements in anything you do. It can be your health that is why a lot of people come up with a resolution at the start of the year to exercise more and make healthier meals. Some people would even go back to school for post-graduate studies to try and be a better version of themselves.
Your finances are no different and it benefits you to always make improvements regardless of how big or small it may be. Trying to streamline and create a lean household budget is a smart step in the right direction. It might sound like an easy thing to do but there are a lot of things involved in this process to make it successful.
What is a lean household budget?
One of the first things you need to understand is what it means to have a lean yet effective household budget. If you have a household budget, you are already doing better than most people who are still trying to manage their finances with mere mental computations. It might be possible when you are just starting out but as you go through life, your finances get more and more complicated.
If you have a lean budget, it means you are able to make the most out of what you earn with a simple budget. You get to monitor items in your budget better and this gives you an advantage down the line. Remember that you need to make financial decisions from time to time and having a simple and easy to understand budget can give you the edge in making an informed decision. Having a lean budget also means that you are able to make do with limited resources. In a way, it is similar to frugal living where you aim to live below your means. Frugality is also a good way of saving for emergencies as shared by CNBC.
Why do you need one?
Now that you understand the idea behind a lean household budget, you might start to ask yourself why you need to have one. It is just as easy to have a regular budget so why subject yourself to creating a lean version of it? Is it really necessary and will it benefit you in the long run in terms of your financial needs?
One thing you can get out of this endeavor is having an easier to understand version of your household budget. There are times when you get caught up with all the details of your finances that your budget starts to pile up. You later end up with a very confusing and complex budget that takes you time to understand and comb through.
Having a lean budget also helps you stay on top of your finances better. As a result, you are able to allocate funds better and it increases the chances of having more to save at the end of the month. This can be used to help you save for your future goals such as paying down big-ticket debt items or even saving for a downpayment on a house.
Steps to streamline your budget
As you understand what a lean household budget is and what it can give you, the next step is looking for ways to actually implement it. Here are a few tips to help you do just that.
Make sure you have a comprehensive budget
The first step to creating a lean budget is to actually create a comprehensive one. This basically means that your account for every single income and expense you have every month. The expense side is a lot harder to put together since it can be erratic from one month to the next. One way to get close to what you actually spend is to list down what you pay for every month. This is important as Yahoo Finance shares that not a lot of people use a budget.
You might think it is too much in the beginning but you need this to make sure that you do not overlook any expense item. If you do, you can run the risk of having to pay more than what you originally owe to your lenders. This is because they can start adding up several fees and penalties on your account for non-payment.
Identify expense areas you can lower down
One of the best things you can do to create a lean household budget is to start identifying the expenses you can lower down. The quickest way to do that is to look at your budget and start working on the biggest expenses going down. This gives you an idea of what items you can start working on specifically in trying to lower it down.
There is a good chance that your mortgage payments will be on top of the list and you can work on this. One idea is to check on your credit score if it has significantly improved from the time you took out the loan. If it has, you might want to consider refinancing your mortgage loan to get a lower rate. Understand though that there will be closing costs so factor that in as well.
Your food expenses could also be high up on the list of your expenses every month. If this is the case, check how you can start with a frugal living approach and look for creative ways to save with your food costs. The easiest way to do that is to start cooking your own meals at home. Not only can you save money but you also ensure that your family only gets healthy meals every day.
Reallocate your income accordingly
Once you start finding ways to create a lean household budget, you will notice that you will have more money on hand after expenses. This is the best time to put this money int good use. You might start to think about that dress or shoes that you have been wanting to buy for the longest time. That new smartphone that came out now seems a little more within reach.
One thing to keep in mind when coming into some extra money every month is that you need to keep a close eye on your lifestyle. It should not be the first one to go up when your finances improve. Keep in mind your goals and targets and focus on them. That new phone, dress, or even the sneakers on a limited edition will all pass but your goals should remain constant.
Create a debt repayment strategy
To keep your household budget in check, it is a good idea to look for ways to pay down your debt obligations as fast as possible. At the very least, you need to put some order into how you approach repayment. Doing so will help you monitor your progress better and allow you to see the strides you are making in strengthening your finances.
One program you can look into is debt consolidation. As the name suggests, you can choose to combine your debt payments under one account to make repayment easier. One example is getting a 0% interest card and transferring all your balance onto that lender. You save money with the interest payment and you can monitor it much easier. Just be sure to pay everything off before the 0% expires or you might start to pay more than what you were paying before.
It is beneficial to create a lean household budget as it can help you manage your finances and help you reach your goals and targets in life.