How to Run Your Household Budget: Part 3
{This third and final Household Budget post is incredibly overdue. Sorry folks!}
{You can find Part One of the Household Budget series here.} {And Part Two of the Household Budget series here.}
For today's work you need:
- your 2-column list from Part Two (listing your "online" and "cash" expenses)
- a pen
- some plain envelopes
- Post-It notes
Step One: Establish How Best to Pay Your Bills
Choose to pay your bills manually (ie entering the bill, amount and date of payment into your online banking portal) or automatically (ie where the service provider deducts the amount on a set date each month).
There are pros and cons to both, and we use a combination. Our insurances are automatically deducted, for example, while I manually pay the phone, electricity and internet bills.
It's simply a matter of what works best for you.
Once you decide, take a Post-It note and write down any automatic debits, the amount and the recurring date. Keep this note aside, it will be added to your other financial information soon.
Step Two: Organise Your Incoming Bills
Have a designated place for all your incoming bills. This post on creating an admin area has some suggestions.
The most important thing is to move them to the same place as soon as you open the mail.
TIP: Set aside a window of time each fortnight as "money time". It only needs to be 15 minutes.
Use this time to pay your upcoming bills (or schedule them for the due date) and organise your cash expenses.
Step Three: Organise Your Cash Expenses for the Fortnight
Take a Post-It note and list out your cash expenses. Then list any additional costs for the fortnight. For example:
- birthday presents
- haircut
- doctors appointment
- weekend away
- home maintenance
You can shift your amounts around as needed. Take $50 from the eating out column to buy a birthday present, or put an extra $100 in miscellaneous spending if you're getting a haircut.
You should know your finances well enough by now to juggle things around as needed.
Step Four: Withdraw Your "Cash" Total on Payday
We established this amount in Part Two and it's really important to withdraw the full amount for the fortnight. You can find the amount at the bottom of your "cash" column.
Step Five: Assign an Envelope to Each Cash Expense:
Take the envelopes and label the front of each with a single cash expense. Also list the amount for each expense somewhere on the envelope. (Eg. Groceries - $500)
For us that includes:
- groceries
- petrol
- transport costs (train tickets etc)
- misc spending
- eating out/beer/wine/entertainment
These envelopes are the backbone of your household budget. Super important.
Step Six: Divide Cash into Envelopes
Each time you withdraw cash on payday, take it home and immediately remove it from your purse. (Otherwise, it goes. And it goes fast.)
Divide the cash into the envelopes, as per the amounts established earlier. Then keep the envelopes somewhere secure and discreet, along with the Post-It note from above.
By completing these six final steps, your household budget will be in good shape. Of course there are inevitable quirks to everyone's approach, but this will work for you - just give it thought and time.Here are some additional things to consider when establishing your system:
- Be sure to keep depositing money in your bills account to cover things like car servicing, registration etc. Even though these things aren't bills as such, they are a significant amount and will need to be saved up.
- Once money goes into your Bills account, do not dig into it in a tight month. Even if it is adding up, you will need this money for large expenses like registration, CTP greenslip, car servicing etc.
Hopefully this series has been helpful. It took me a long time to establish a good budget, and even longer to teach myself how to stay with it.If you've got any questions or tips on your budgeting system, I'd love to hear them!You can find Part One of Managing a Household Budget here.And Part Two of Managing a Household Budget here.