Crafting a Budget

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In personal finances, there is nothing more important than putting together a budget and sticking with it. I can tell you from personal experience how easy it is to outspend your salary if you don’t pay attention to what your spending. A budget will help you to stay within your means, and help you to establish that nest-egg you’ve always dreamed of putting away. This excellent article, by Michael Baker, will help you to figure out the best way of crafting your budget and what items belong on it.

Making A Family Budget

By Michael Baker

With a new year, should come making a family budget. I cannot stress enough the importance of coming up with a budget for the household expenses. The budget planning should consist of both persons involved, primarily the husband and wife. You will both need to agree on the numbers, and may even need to compromise here and there. In the end, you will be amazed at what a budget can do for the family. Step one, is to decide what goals or items you need to pay for this year. A few examples would be new tires for the vehicle, maybe a new vehicle altogether, a family vacation, pay off a credit card, or just about any other item like these. Once these are decided, you can kind of work backwords to figure out the budget numbers.

Step two, is to figure out all of the income you have coming into the house. If both parents are working, it is the W-2 income. If you have a home business, then if you need this income to pay for items, figure out a conservative amount from the business, and use this number. Just take into account the current monies you are making. If you plan on getting a raise, or increasing the income from the business, adjust the budget for these later. But for now, play it conservative.

Step three is to then figure out all of the fixed expenses you will have each month no matter what. Examples are the car payments, insurance, rent or mortgage, electric bills, phone bills, cable, internet, you get the point. Do not figure in credit cards yet. Add all of these expenses up, and subtract them from the income. This is the amount you have left to put towards the credit cards, paying them off, vacations, etc.

For credit cards, it is best to take the lowest credit card amount and pay this one off first. For the others, just pay the minimums for right now. Reason for this is so you can actually make some progress and see it. You can normally pay off the lowest account pretty quick, and this will give you the sense of accomplishment. Once this account is paid off, you will them put this entire amount you were paying towards this card, and add it with the minimum you are paying to the next lowest card. You will do this until all credit cards are paid off. This will take some time, but just stick to it.

Once the credit cards are paid off, DO NOT close the accounts. Keep the accounts open, but do not charge on them. This will increase the amount of credit you have available, as compared to the amount of debt. In return, this will increase your FICA scores, or credit scores. This will play a large part in the future for house loans or any other loan you may need.

The last items to consider will the extras. Items such as going out to eat, birthday and Christmas presents, vacations, food, gas, etc. Although Christmas is 12 months away, you should start to budget now for this. It could be just $40 a month, and by the time Christmas rolls around, you will have almost $500 in the account for presents. Do this for all of the extra expenses.

The budget is not set in stone. After the first month, sit down and see how everything went. Did you over spend, or under spend in certain categories? Make the adjustments and then keep going forward. The budget will allow you to know exactly where you are in regard to your personal finances at all times. The more organized and informed you are, the more disciplined you become. And at the end of the year, you will see the progress you have made. Get to making a family budget!!

Michael Baker is providing quality information on Personal Finances and making a family budget.

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budget financial management financial planning personal finance

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