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The best way to manage household finances is to establish a budget so that income and expenses can be clearly monitored. Keeping track of incoming and outgoing funds assists with ensuring that bills are paid on time, household expenses are covered and savings goals are set and achieved.

Even a simple budget can help to bring order to chaotic finances.

Step 1 - Prepare

Collect all receipts in a box for one month. A shoebox is ideal. If you are not issued with a receipt for a purchase (for a cup of coffee for example), note the date, item and amount on a piece of paper and include with the other receipts. At the end of the month, divide the receipts into appropriate groups (groceries, books/magazines, CDs/DVDs, drink/snacks, outings/entertainment etc).

List regular payments, including all regular weekly, monthly, quarterly and yearly payments. These will include bills such as telephone, gas/electricity/water, rent, mortgage, rates, insurance, school fees, etc.

Select a budget format to suit your needs. Many financial institutions supply budget tools on their websites, however this often requires that details be entered online. Some websites offer downloadable forms for free and accounting software such as Quicken and others have budget forms included.

It is a simple task to draw up your own budget form, especially if you have access to spreadsheet software. It is easiest to work on a monthly cost basis, so all income and expenses should be multiplied or divided to fit this calculation. A weekly expense should be multiplied by 52 (weeks in the year) then divided by 12 (months of the year) to get a monthly equivalent figure. A quarterly bill should be divided by 3 to get a monthly amount etc. It is helpful to know what is currently happening to your money to highlight crisis areas that need to be addressed.

Step 2 - Assess

Once you have listed where money is currently being spent and how income and expense totals compare, it is time to assess where changes need to be made in spending habits to create a workable budget that will balance and achieve any savings or debt repayment goals.

Divide current expenses into categories:

NECESSITIES (utilities, rent/mortgage, insurance) – These bills are a fact of life and can’t be avoided. It can be worthwhile to shop around to get best deal to limit these expenses as much as possible.

ADAPTABLE - haircuts, groceries, entertainment and activities. These are necessary expenses that can be modified more easily to fit in with budget restrictions. Groceries are necessary, but there are often less expensive alternatives for most items and some stores have lower prices than others. Allowances need to be made for children’s sporting/extracurricular activities, but it sometimes necessary to limit the number of activities undertaken.

EXPENDABLE – luxury items where it is easier to economise. Doing without some items in the short term can have a big impact on balancing and maintaining a budget, especially if there are debts to be paid and/or savings goals to be achieved. It is worth limiting these purchases to ensure long-term success and financial stability. Expensive clothing and jewellery, regular meals at expensive restaurants, magazine subscriptions, pay TV and regular CD and DVD purchases can all be removed entirely from the budget or limited to an occasional ‘treat’.

Step 3 - Implement

Once a decision has been made about which budget categories can be reduced, draw up a new budget form showing your planned allowances for each category. Be practical. If your grocery bill was previously $250/week, it is unlikely that you will be able to reduce it to $100/week overnight. Ensure that there is an amount allocated to saving and/or paying off debt. To provide motivation to stick with the new budget, it might be helpful to have a specific short-term (reducing the weekly grocery bill by 10%) and long-term (such as paying off the credit card debt within 18 months) goal.

Reassess the budget after one month, making any adjustments that are necessary. Assess again after three months.

Financial management and budgeting skills come easily to some and not to others. If preparing a budget seems too daunting a task to tackle alone, ask for help from a more financially organised friend or family member. There are a variety of helpful organisations and businesses that can also assist with bringing order to disorganised finances.