December 27, 2010

Simple budgeting for housewives

Since I was still in college and having little knowledge of accounting, I always made budget for my expenses. Train tickets, transportation, copy books, meals, entertainment, were my major accounts. Fortunately, I still have that habit up to now. As a housewife, I find it really is becoming handy when you know how to handle simple everyday finance, especially when you only have one source of income. You don't have to be an accountant to manage your home finance smartly. The only upper hand an accountant has is that she knows some buzzwords to put in the budget system :p. So, here is a tip on how to micromanage your home finance by building a simple monthly budget .


The major advantage of managing your home finance is you could save some money or at least you will not have to do dissaving (taking out your saving account to cover your basic expenses). 
While the downside, it will take probably 1-2 hours of your day every month, and probably 1-2 more hours by the end of the year. 

First, you have to know your major expenses. It's the  expenses that you have to spend in order to live. Such as groceries, house rent/mortgage payment, water and electricity, gas, petrol, etc.; basically all the bills you have to pay every month plus the groceries for daily needs. (We'll explore groceries post later). These are your  fixed costs. Set this aside on the top of the list just after income.

Second, I like to make a pool of deferred expenses that must be paid sometime in the future - a kind of saving for expenses. For instance, we have to pay the house rent once a year. So after the first payment, I begin to set aside a monthly amount and put in this pooling account. In this way, next year, we don't have to withdraw such a lot of money to pay for the rent. But this pooling account is restricted ONLY for the main expenses that become a liability. Children's school fee that due once a year is another example. Holiday, shopping spree, which are not liabilities, do not belong in this pooling account. 

Thirdly, go after the things that are needed but varied in amount, such as entertainment expense, including dining out and going to movies or fun park. Don't spend to much or put too high budget estimation in this post,  since this will vary. Around 40% of the major expenses (that is the first part of expense budget)  is acceptable for me. There are also credit card payment in this part of the budget. However dealing with credit card will be discussed in another posting.

Those are the major accounts of expenses most households have plus Zakat for the muslim family, but I like to add the fourth one below. (For zakat nisbah and calculation, please refer to your trusted site or teachers). 

Fourth, is investment cost paid monthly such as insurance (takaful) account, education plan or mutual funds. These investment are tied to time contract and cannot be withdrawn in any desired time. Therefore, once you put your money in to this basket, you cannot use it for a definite period of time. Therefore they are included in my monthly expense.

All of the above makes your cash outflow. But before you substract the inflow (income) with your total outflow, open your groceries account. How much do you spend actually every month for basic needs according to your lifestyle? Is there any items that you can write off from that monthly/weekly/daily groceries list? When you make a grocery shopping list, stick to it. Don't buy things out of it. If you know your children likes to just grab some sweets next to the check out counter, put a 'miscellaneous item' in your list, that amounted not more that 5% of the total groceries. In short, put a number that you normally spend (without buying party do's or dinner invitation, just your household needs)  each month for groceries and stick to it.

Then you can have your budget. Income minus Expenses (Post 1+2+3+4) equals Saving.

Don't have any saving in your calculation? Don't worry, the first 3 months is the time to tidy up those mess. I even needed around one year to tidy up the mess of transition from moving from Holland to Saudi. After your budget is organized, you can fix about 20-30% of your take home income as your saving, then stick to it.

My experience was that, groceries are the major culprit of high expenses. Always try to have the shopping list on hand and shed those high miscellaneous things, my kids trying to buy (or I buy after seeing the promo leaflet ;)). After you stick to your own plan, you can see your spending pattern, then you can make a better expense budget, based on the last 3 months you spent.

Be discipline to your own budget is the main key. It's your own financial planning for the month.

After you have your saving number up, you can plan your vacation, shopping spree, buying stuff or do things. After all it is your money.

Have fun making budget :))

(pic from Michelle Meiklejohn / FreeDigitalPhotos.net)

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