With the holidays around the corner, and all of the over-spending that goes along with the season’s celebrations, we thought it was time to take a good long look at household budgeting. You may wish to make this one of your New Year’s resolutions, as it is essential to plan effectively for your household’s financial welfare.
There are many methods to track income and expenses, from old-fashioned paper and pencil to computer programs to smart phone apps, so you have a wide range of tools to choose from.
The first step is relatively easy, what is your net household income? This comes from employment, child support, interest/dividends, etc.
Secondly, you’ll need to determine what you are spending currently. Take a look through your checkbook, online banking records, and receipts to tally up where your money goes. The longer the period for which you accumulate data, the better. You want to capture seasonal trends and expenses that you routinely have, and determine long-term financial commitments (e.g., college funding).
The third step is to develop your plan. There are opinions all over the internet as to what constitutes a reasonable budget plan. While ranges vary, yours may look like the following:
|Housing (mortgage; taxes; insurance; utilities)||35%|
|Transportation (auto loans; fuel & maintenance; insurance)||15%|
|Savings (emergency fund of 3-6 months; retirement; etc.)||10%|
|Debt (credit cards; education loans - but not auto loans or mortgage)||10%|
|Discretionary (food; clothing; medical care; entertainment)||25%|
Obviously, your plan needs to be adjusted to your specific circumstances—one size does not fit all. But, a plan is necessary along with comparing your actual spending to the budgeted plan.
The hardest step comes from making necessary spending adjustments. It’s a mindset to determine which expenditures are “wants” and which are “needs.” You may wish to eat out a lot (who likes to cook?), but, given that our sample 25% discretionary goal has to cover many variable costs, this may not be feasible. Similarly an expensive vacation is a luxury “want” that may have to be put off until debt is paid down or eliminated.
We know this isn’t a pleasant topic, but it should be discussed with the entire family unit to get buy-in from everyone along with periodic updates as to progress being made toward financial goals.
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