A Household Budget: Living Affordably

27
January

The Commerce Department of the federal government estimates that roughly 5% of Americans are saving significant amounts from their paychecks. Although the number has risen from 0.4% in 2007, most Americans do not follow a budget. Putting together a budget is one of the easiest ways for families to free up more money. A budget can show where people can spend less and save more. And it works for people of all income levels.

Creating a budget takes the entire family. Each family member should sit down and write a list of all of their expenses. Everything they spend money on should be included. Even things they only buy once in a while should be written down.

Once every member of the family has their list of expenses, all of the lists should be combined. The list should be divided into essentials and non-essentials.

Essential items include expenses like a car payment, mortgage, or utilities. These items should go at the top of the expense list. Non-essential items are expenses such as eating dinner out. Non-essential expenses can add up in a hurry if not accounted for.

Families should place their after-tax monthly wages at the top of the list. Subtracting each expense one at a time will show how quickly a month’s worth of wages will disappear.

The difficult step is deciding what to cut. It’s possible that every family member will have to give up something for the budget to work. Choosing who loses what can be difficult. It’s important that each person keeps an open mind. No one should have to give up all of their spending expenses while another person does not.

With a budget set with only essential expenses, some money should be set aside for an emergency fund. An emergency fund should eventually be able to cover 6 months to 1 year’s worth of expenses. It can be difficult to put aside that much upfront, so choosing to save a certain amount towards the emergency fund each pay period is easiest.

The remaining new savings should be either divvied up to each family member equally or set aside for something everyone will enjoy. An easy example is a family vacation. Pick a destination that each family member is comfortable with and then use a year’s worth of savings to travel there.

It’s important that each family member cuts their expenses and receives some benefit from the budget. It’s difficult sticking to a budget if everyone is not personally invested in the plan. A small amount of the new budget savings should be given to each family member. They’ll be able to spend some money on whatever they wish.

The budget, expenses, and spending should be accurate and realistic. For example, there isn’t much point in a millionaire setting aside only $5 each month. A budget is about creating an affordable style of living and saving money for important items.

A budget can show families exactly what kind of lifestyle is affordable. Every family will have different priorities on what to spend their money on. However, families that live far beyond what they can afford are at risk. A sudden financial emergency can put them in danger of losing their home, personal assets, or vehicle. A budget can’t prevent financial emergencies. What it can do is ensure that families have at least some money available for those types of situations.

Establishing a household budget allows families to see their spending habits in writing. Often people may not realize exactly how much money they are wasting. Organizing a budget and sticking with it allows families to save money for more important items. Although a budget and saving more might be difficult, it provides long-term financial security. A budget can keep a family from experiencing bankruptcy from a sudden emergency. By starting a budget now, a family will be more protected against financial difficulties in the future.

This post was written by

jason – who has written posts on Budget Clowns.
Father of three and married to a lovely women. Always looking for ways to save money, and invest it properly for my children's future.

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