About 4 in 10 Americans are struggling financially.
Much of this hardship can be attributed to the harsh economic effects of the COVID-19 pandemic, but millions of American workers were still living paycheck to paycheck even before the virus hit.
You don’t have to be among those who’re struggling to start planning your household finances. If there’s a financial lesson to take away from the pandemic is unless you’re a multi-millionaire, you’re living in a financial house of cards. Budgeting and spending your money wisely will go a long way in helping you stay financially afloat.
Continue reading for expert insight on how to manage your household finances.
What’s Your Income?
The first step to having a grip on your household finances is to know your income.
This might sound confusing, but you will be surprised to learn that most people don’t know their income. They only have a rough idea of what they earn every month or annually.
Yet, without knowing how much you earn, it’s impossible to draw a budget that works for you. If you have one job, compute how much is left after you’ve paid taxes, debt, and other recurrent deductions. Whatever is left is your net income.
If you have multiple incomes, do the same thing.
What Are Your Current Expenses?
Now that you know your income, the next step is to establish how much you spend every month – on average.
The best way to do this is to record all your expenses. Everything from your rent to food, entertainment, gifts, and travel should be recorded. Do this for a couple of months, since you won’t be spending the same amount every month. A 3-month expenditure list, for instance, will give you an accurate picture of your average expenditure.
When you compare your net income with your monthly expenditure, what do you see? Are you spending more than you’re earning? Are you spending just as much as you’re earning?
Ideally, you should be spending no more than 50 percent on your household needs and obligation. If you’re spending more than this, it’s time to sit down and draw a household budget that meets the 50% rule.
Cut out expenses that aren’t key to your survival at this point in time. If you’ve got multiple cable and streaming subscriptions, for instance, you can do with one. If you’re often eating out or ordering fast food, try making home meals.
Save for Household Emergencies
Household emergencies will happen.
A family member could fail ill. A flood could destroy your basement. A windstorm could damage your roof.
While you might be powerless to stop some of these events, there’s something you can do to prepare for them. We’re talking about financial readiness.
In the event of extensive storm damage, you should have enough money saved up to take care of the cost to replace a roof and repair other areas in the home.
If you can stick to spending no more than 50 percent of your household need, you’ll be in a better position to save and invest.
Put Your Household Finances in Order
One of your responsibilities as an adult is to put your household finances in order. This is usually easier said than done, but with the right knowledge and enough determination, you can pull it off. Use this article as your guiding light.
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