A household budget is a finance plan that allocates future personal income towards expenses, savings, and debt repayment.
Welcome to my series, How To Use Money To Make You Happier. In the introduction section, I gave some stats and mentioned a few reasons for starting this series.I am going to break this series into a couple of steps:
- Introduction
- Make SMART financial goals
- Create a budget
- Income
- Expenses
- Needs and wants
- Debts
- Difference between good and bad debt
- Pay off debt
- Use the credit to your advantage
- Give to charity
Budgeting has only one rule: Do not go over budget – Leslie Tayne
A debt problem is, at its core, a budgeting problem – Natalie Pace
When it comes to money and so many other things in life, understanding your weaknesses and strengths can help you with your future plans – Tagene Brown-Mcbean
If there is one thing, I have learned being in the wealth management business, teaching financial planning, and counseling people over the last two decades is that Americans do not like to create a budget. As a result, I have heard it all. Jerry, you are taking away all the fun from life. You mean I cannot take three vacations a year. I cannot buy a new pair of shoes every month. I cannot buy expensive makeup. I cannot eat out all the time. No! I am not saying that. In conclusion, I am empowering you to live within your means by creating a household budget.
The main goal of a household budget is to show how much money you are making a month and how it is spent. It is the foundation to build your financial future. Above all, a budget helps you to use your money efficiently.
A household budget gives you control. It allows you to balance your income with your expenses.
If you do not balance your budget and spend more than you bring in then you end up in debt.
Income
The first step in creating your household budget is to look at your monthly net income. If you get paid on the 15th and the 30th of the month and you get $2,000 every payday then your monthly income is $4,000.
Expenses
It is important to keep track of all your monthly expenses.
I like to break down expenses into fixed, variable, and discretionary.
The first thing to look at is your fixed expenses. The fixed expenses could be your student loan payments, car payments, rent, or mortgage. These payments are fixed and you cannot decrease them.
The second thing to look at is your variable expenses. These expenses can change from month to month and would include gas and groceries.
Discretionary expenses would include shopping, entertainment, travel, and recreation.
The bank or the credit card will provide you with a proper breakdown of your expenses.
You have now documented your net monthly income and your fixed and variable expenses. You can see where your money is going and you can make changes. If you make $4,000 a month and you are spending $3,600 and saving $400 a month, give yourself an A+. If you are spending more than $4,000 a month, then you need to look at your discretionary expenses and changes need to be made.
Create a System
I will let you decide if you want to use a pen and paper, Excel budget template, money management apps, budget calculator, financial software, or a system designed by the financial gurus. At the end of this article, I will give you a simple example of a budget worksheet.
Advantages of having a budget
- It empowers you and gives you control
- It keeps you focused
- It shows waste
- Reveals your spending habits
- Reduces stress
- Helps in becoming more disciplined
- Helps you focus on your goals
- Motivates you to save for vacations and unexpected bills
Needs and Wants
You cannot always have what you want. Sometimes you get what you need. – Linda Berdoll
Supply the needs first and the wants later, for one can only obtain true peace, love, and joy when one supplies the needs first and not the wants. – David Benedict Zumbo
A need is something you have to have in order to survive. Food, clothing, shelter, and health care are examples of a need. A BMW, Nike shoes, Polo T-shirts, eating out, going to the movies are wants. Try to spend 80% of your income on needs, 10% on wants, and save 10%.
Example of a Household Budget
Monthly Income _____ Insurance _____
Net Income 4,000 Car
Dividends Health
Interest Life
Benefits Home
Charity _____ Personal _____
Savings _____ Groceries
Vacation Personal
Retirement Other
Wants Miscellaneous
Credit Card Debts _____ Entertainment ______
Visa Meals
MasterCard Movies
Amex Gym
Loans _____
Student
Car
Home _____
Mortgage/Rent
Taxes
Heat
Water
TV/Cell/Internet
Monthly Income minus all your expenses let you know if you are over or under budget
Finally, it is important to review your budget, every quarter. A budget is a piece of art and not an exact science. Look at some of the areas you need to get better. If you are getting better reward yourself.
There will be times when you have an unexpected expense. That is when your savings come in handy.
Email me back as to how this has helped me and any other questions you may have.
Photo Credits: NORTHFOLK Dan Dimmock Omid Armin Avel Chuklanov
(Visited 333 times, 1 visits today)