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Every Household Needs a Sturdy Budget

Having a household budget is a key component for anyone trying to properly plan their personal finances. Income and expenses must be identified and categorized, and it is best to use a spreadsheet for this. The budget needs to be kept up to date as the household situation changes. If done thoroughly, it will provide tremendous assistance for financial planning. Start the budget process by identifying monthly income.

This would be the net amount of pay checks in one month. The net amount is the amount remaining after taxes, insurance and other deductions have been made. If you are paid on a monthly or semi-monthly basis, this is easy to plan. If paid biweekly, use the total of two checks. In some months, you will receive three checks but it is not advisable to plan around this.

Do not use income that you cannot guarantee, such as overtime, bonuses or gifts. If you are paid hourly, calculate net pay based on the average number of hours worked. Find the total of your net monthly income and highlight. Next, list your fixed expenses. These include mortgage or rent, all utilities, phone bills, student loans, child care, and fixed vehicle loan or lease payments that are due every month. Utilities and phone bills may vary month to month – use an average of the last twelve months to account for seasonal variation.

It is also helpful to list the payee and method of payment (such as automatic payments or by check) and due date for your planning. Total and highlight the fixed expense category. Variable expenses follow fixed expenses. These would be items such as groceries, gas, and entertainment that often change significantly from month to month. This would be where to enter allowances for clothing or vacations when they are planned but not always used in a given month. If you have a chance of incurring the expense, include it. Total and highlight the variable expense category.

Finally, total the two expense category subtotals and subtract from your total net income. If your result is above zero, great! The best thing to do to ensure savings would be to take some or all of that amount and move “transfer to savings” into the fixed expense category to both plan for it and remind yourself to do this month to month. If your expenses exceed your income, it is time to take another look at your variable expenses to make some adjustments.

Proper financial planning is key to a successfully functioning household. By taking a few minutes each month to identify and organize your income and expenses, you will have an idea of your household finances. You can use this budget to plan on paying down debt or creating savings to improve your personal finances.

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