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Ever gotten that gut-wrenching fear in the pit of your belly or that feeling of anger and despair when you thought of making a household budget? Then chances are you’ve never looked up the word in a good dictionary. Neither learned all about what this word means, and how you can use that to your financial advantage.
Many people do not consider the importance of a household budget. They indulge in spending according to their earnings and do not leave room for emergencies. This usually ends up in the incurring of debts and sometimes, personal bankruptcy. A budget helps to counter these consequences.
One of the first things any married couple should do is put all their cards on the table and set up a budget. If you set up a realistic budget based on your joint goals in life, there should not be that much to fight about. However, most couples do sometimes fight about money. Having a budget will cut down on fighting if you both understand the point of the budget and agree with the budget.
What is a Budget?
A budget is simply a spending plan that considers both current and future income and expenses. Having a budget keeps your spending in check and makes sure your savings are on track for the future.
Another simple definition you need to know is this: a budget is the amount of money it takes for the organization or household to function, and to attain its goals.
More than likely, you have financial goals you also want to attain (the second part of the definition.) Attaining those goals must become part of your budget as well. For example, a couple wants to take $2,000 cruise 6 months from now plus start saving for a $20,000 used car to replace their current car 2 years from now.
They divide the cost of the cruise by the 26 weeks they have before the cruise date and learn they must set aside $76.92 every week to have the cash for the cruise. This gets added to the budget, meaning the additional amount of income they must put into the bank every week.
Now they divide the cost of the $20,000 car by the 104 weeks they have in 2 years and learn that they must also set aside $192.31 each week to pay cash for the car. This also gets added to the budget.
Why Is It Called a Budget?
The word budget is derived from the Old French bougette (“little bag”). When the British chancellor of the Exchequer makes his annual financial statement, he is said to “open” his budget, or receptacle of documents and accounts.
Creating A Household Budget
The essential calculations in establishing a budget are income and expenditure. The purpose of a budget is to ensure that the expenses do not exceed the income and provide savings for the future.
An effective household budget needs to be documented in the form of a chart or table. This needs to be easily comprehensible and provide a quick summing up of the relevant details. The chart needs to effectively reflect the different heads of expenditure. Suggested heads are housing and utilities, entertainment, health and beauty, transportation, communication, and household.
These can be further subdivided as follows:
Smart Household Budget
|Mortgage payment or rent||Cable Television||Hair-Cuts & Perms||Car Payments, Insurance||Landline Telephone||Groceries||Credit Card Payments|
|Insurance||Internet Access||Make-Up||Gas||Mobile Devices||Cleaning Supplies||Other Loan Payments|
|Taxes & Electricity||Dining out||Medical, Dental & Vision,||Routine Maintenance, Repairs||Voice mail||Laundry, Dry Cleaning||Child Care, Items for Baby/Elderly|
|Natural Gas||Bars & Clubs||Weight Loss & Diet Products||Air Travel||Home Improvement||Book Clubs, Magazines, Music & Fast Food|
|Water & Garbage Collection||Sporting Events, Parties & Lessons||Nutritional Supplements||Rental Cars, Public Transportation||Projects, Towels, Linens||Vacation, Spending Money & Tithes|
If you have any other expenses that are not covered, you could add them to the list.
Smart Budget Tips
Next, try to reflect all expenses on a monthly calculation. For example, if you pay yearly taxes, calculate the monthly expense by dividing the yearly amount by twelve. Having done this, add up all the figures to arrive at the total monthly expense figure. Then subtract this amount from your take-home salary amount.
If you find the remainder is negative, you need to look for expenses where you ought to cut down. For example, if your take-home salary is $2,500 and your expenses total $2,750, you would need to trim down $250 each month, from the expenses.
If you need to cut down on your expenses, you would be the best judge to decide where to make the changes. However, it would be prudent to cut back on the extra subscription television channels. If you are a smoker, cut down or quit smoking instead. Take home-cooked lunch to the office instead of eating fast food. Economize on power consumption by avoiding unnecessary use of the air conditioner and heating and make less use of the phone.
Creating a smart household budget is necessary to manage your finances and is not dependent on the size of your income. It helps to prevent overspending and personal bankruptcy, allowing you to keep track of your income and expenditure.
The basic rule of thumb is to divide your monthly after-tax income into three spending categories: 50% for needs, 30% for wants, and 20% for savings or paying off debt. By regularly keeping your expenses balanced across these main spending areas, you can put your money to work more efficiently.
Write Down Your Joint Goals
What are your goals in life? What do you see your life being like in 20 years? The important thing to remember is that goals need to be based on reality to work. If you have a lower-middle-class earning situation, you are not going to live the upper-middle-class dream. That is okay; you can still be happy if you work toward what you want together.
Create a Family Money Mission Statement
This can truly help your family develop a realistic household budget that is based on your family values and priorities. Do you want to live happily on very little or do you want more? If so, you may need to set up a mission statement that values education and moving up the income ladder realistically.
Create an Investment Spreadsheet
Do not try to memorize what you see regarding your accounts. Put it all into a spreadsheet or any system you find that helps. You should be able to see all your income, investments, and expenses, at a glance, including both the budgeted amount and the actual amount. In addition, you should see your paydown progress if you are working toward paying off debt.
Determine How Much You Need to Save
Using your future goals, you will want to determine how much you need to save. If you want to have a certain amount in your account by a certain year, what will that take, based on today’s numbers? You will adjust this each year to account for changes.
Review Finances Together Regularly
Take the time together to review your finances and how you are both doing on a regular basis. Some people like to do it every single month, and others do it quarterly. It will depend on your situation and how much control you both need to exert to ensure you stay on track.
Consider Getting Professional Help
One way to cut down on fighting if you are having issues deciding things determined above is to get some professional help. If a financial advisor helps you set up a budget that will help you reach your stated goals, there is no fighting. You can blame it all on the financial planner.
Be Considerate & Flexible
As you are creating your budget avoid placing blame for anything from the past. Start fresh from today with what is your reality. If you are in debt due to poor planning even if it’s just one of you at fault, let it go and work from now to change the future. After all, you really cannot change the past. It is done and over, so time to move on.
Share Spending Money Fairly
Regardless, the budget and the plan always work in a way that each of you gets some money that you can spend any way you want to. It may not be very much while you are trying to pay down debt but try to make it fair and equitable.
Last Word: Budget Without Fighting
Here’s the good news: living on a budget does not mean you have to cut back on the quality of the things you buy or deny yourself anything fun. What it does mean, is that you must figure out how to make enough money to afford the things you want and to keep your spending within the limits of your income.
The even better news is that the most valuable asset you have is yourself and your income-earning potential. If you want a bigger budget, then figure out a way you can be more productive to earn more money.
Fighting over money can be eliminated if you get on the same page. The goals you have should be shared jointly. Each person should have a say in how things are handled. Even a non-income earner deserves to have a say in the family’s household budget, helping to develop spending and saving priorities. If you both accept that this is a joint responsibility, fighting will be cut down tremendously.
More on Household Budgets: What Is a Budget & How to Create One