Managing a household budget isn’t easy. With electricity and gas prices increasing and wages barely keeping pace with inflation, it is natural to feel overwhelmed by the stack of bills mounting on the fridge door.

But experts argue cash flow is only part of the problem. While many financial problems would be solved with an extra few thousand in the bank account, how we manage our money day to day makes the biggest difference in the long-term.

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It is time to take a long, hard look at the household ledger.

Draw up a budget

Finder.com.au money expert Michelle Hutchison says we should start with a spreadsheet.

“Grab a hold of your bank statements for the past three months and list all of your expenses, you can average these out, in one column and the money coming in in another,” she says.

“Make sure you take into account the various seasons, as you will obviously use more electricity for heating in the cooler months.

“Then go through each financial outgoing to see where you are spending. You may notice, for example, that you are wasting a lot of money on ATM fees.”

Know where your money is going

Count your pennies carefully – it all helps. Photo: Shutterstock

Independent advisor Ben Smythe from Smythe Financial Management is surprised by how many of his clients have never drawn up a proper budget.

“People have a very good idea of what is coming in, but not such a great idea – beyond the mortgage and their rent – of what their outgoings are,” says Mr Smythe.

“The first thing I do is draw up a detailed budget so we know where their money is going.

“Sometimes this involves a frank discussion where I tell people that from where they are currently standing they cannot afford that house they are wanting to buy.”

Think small

Once you are aware of where your money is going, it is time to eliminate wastage.

Ms Hutchison recommends people pay off their car and home insurance policies in one large hit as there are big discounts for paying annually rather than monthly.

Pay off car and home insurance policies in one hit to save big bucks. Photo: Shutterstock

“Put aside that money every month so that when it comes time to pay the annual cost you will be able to pay upfront for less,” she says.

She also advocates using comparison websites to switch electricity providers if you find a better deal.

Most importantly, Ms Hutchison says people should make small changes to their daily habits if they want to see a difference in their bank balance.

“Little things like turning a computer off at the server or making sure appliances are switched off at power points is important, too,” she says.

“Even something as simple as planning your meals in advance means you are less likely to go to the store and buy something on the basis that it may come in handy.”

The new year is also a good time to cancel gym memberships or pricey subscriptions you don’t need or use, she adds.

The long-term prescription

Of course, the main reason to stick to a budget is not simply to get by but to get ahead. The trick to staying on the straight and narrow is to have a long-term financial goal in your sights.

“I ask people what they really want to achieve in life,” says Mr Smythe.

“Simply saving and saving is not going to work, but if you identify what is important to you in your life you are more likely to make the changes to bring it about.”

These changes may be as simple as better household budgeting or not spending every work bonus you get, but can mean the difference between a realised dream – such as home ownership – and one crushed under the weight of bill shock.