The Household Budget

Part Two - Creating Your Budget

If you followed the suggestion in Part One of this blog topic you have already tracked your spending habits, collected your income information and are now ready to create a budget that accurately reflects your life stage.

The budget schedule typically lists this information as annual income and expenses. After the schedule is complete, you must decide when you will check and update your budget. Generally, most people check their budget based on their pay periods. Whenever you decide to review your budget, make sure that it is comfortable for you. Remember, the budget is your guide ‑ not your task master.

Photo: DoughRoller

An annual budget schedule for a dual income no kids (DINK) household might look like this:

INCOME:

TAKE HOME PAY - JOB 1 $60,000

TAKE HOME PAY - JOB 2 24,000

TOTAL INCOME $84,000

FIXED EXPENSES:

MORTGAGE 25,000

AUTO LOAN 9,000

INSURANCE 3,000

TOTAL FIXED EXPENSES $37,000

FLEXIBLE EXPENSES:

CLOTHING 8,400

FOOD 12,000

UTILITIES 6,000

ENTERTAINMENT 3,600

TOTAL FLEXIBLE EXPENSES $30,000

SAVINGS & INVESTMENT:

SAVINGS 8,400

EMERGENCY FUND 3,800

VACATION 4,800

TOTAL SAVINGS & INVESTMENT $13,200

TOTAL EXPENSES, SAVINGS & INVESTMENT $84,000

NET INCOME & EXPENSE $0

After you have listed everything and broken it down into the periods that you will check regularly, list your real income and expense next to your anticipated figures. This will let you know first, how right your numbers were and second, where your budget may need changes.

Another useful function of a budget is that it will help you to provide for future spending needs. For example, you have had your television for about six years and it hasn't given you any problem. Just how long do you think it will last? The cost of a new television is about $800 and you guess that this one will last another three years.

To provide the cash to buy a new TV in three years you would divide $800 by 36 months (three years) to come up with how much you should save each month, about $22.

These are but two uses of your budget; monitoring and controlling spending and providing for replacement of goods. A budget will also help you set goals for the future beyond simply replacing your TV. A budget can help you plan for the vacation listed above, your children's education, investments, and just about anything that requires time and money to carry out.

Above all, a budget will give you piece of mind in knowing that you are spending well within your income and providing for a way to save some of your hard-earned cash.

So what are you waiting for, start your budget.