Saturday, April 08, 2006

Setting a family or personal budget

Setting a family budget

One of the most important steps to getting your financial house in order is to understand where your money is going and living within a family budget. "Living within your means" is a term that describes people that know how much they make in take home pay and how much they are spending and making sure that they are living within their budget and not incurring additional debt.

Key things to remember about living within a family budget:

  1. The golden rule spend less than you make
  2. Understand where your money is going on a monthly basis
  3. Develop a rainy day fund to help out with the unexpected
  4. Pay yourself first, are you saving for retirement in a company 401K or in an IRA?
  5. Pay off your credit cards every month

So lets get started. If your take home monthly pay is $2000 a month or $500o per month it really doesn't matter. You need to understand how much your monthly expenses are. A simple way to understand what your budget should be is to look back at your last 6 months of expenses and develop a list of what you spend each month in each category. If you don't know how much you spent over the last 6 months now is a great time to start working on you family budget. Additionally, if you are moving to a new area and you would like to get and estimate of the typical family budget in a particular area check out the family budget calculator.

Here is a list of common monthly expense categories that you can start with to establish your family budget.

  1. Rent or mortgage payment
  2. Car payment
  3. Grocery bill
  4. Restaurant bill
  5. Entertainment
  6. Electric bill
  7. Phone bill
  8. Gas bill
  9. Cellular phone bill

Here is a list of common annual expense catergories:

  1. House insurance
  2. Car insurance
  3. Life insurnance
  4. Vacation costs
  5. Clothing
  6. House hold items

There are other things that you should also consider in your family budget that don't come along all the time but really need to be budgeted for including.

  1. Health care costs
  2. Car repairs
  3. Home repairs

Are you within budget: Once you understand what your expenses now you need to determine if you are living within you means. If you are spending more on average than you are taking home you are over budget. Which means that you are either incurring debt or you are paying for things out of your longer term savings. In order to get things under control you need to determine what expenses you can cut. Some things are discretionary expenses such as eating dinners out, entertainment, new clothes, magazine subscritions, cable TV, etc. If you can cut these expenses do this first. In some cases you may not have discretionary expense that are easy to cut but your fixed expenses like car payments and rent are too high. In that case you may need to determine how to reduce you fixed expenses such as moving to a low cost apartment or home, selling the car and buying something less expenses.

Related links:

Thanks for visiting please check out my other blogs and websites:

If you enjoyed this post please Subscribe to Strategies for Life. If you would like to tag this post at click here.

No comments: