Creating and adhering to a personal household budget can help reduce monthly expenditures. Reducing expenditures allows the family to concentrate on building savings. If a family is living paycheck-to-paycheck, financial planning can help reduce the anxiety associated with paying monthly bills. If the family goal is to pay off high-interest credit cards, the personal budget should be the first step.
The First Step to Creating a Personal Budget
The first step to creating a personal budget is to list all the monthly expenditures and their amounts. The first items on the list should be bills that must be paid every month. Some monthly bills, like utilities, for example, can fluctuate from month to month. Previous bills should give a good indication of the amounts to list for bills that fluctuate. For credit cards, the minimum monthly payments should be listed.
- Rent/Mortgage Payment $1,500
- Car Payment $400
- Car Insurance $75
- Phone $50
- Water $50
- Electricity/Gas $150
- Visa Card $275
Total Monthly Bills $2,500
Budgeting for Variable Expenditures
The next step for creating a personal budget is to list expenditures that aren’t mandatory monthly payments but are considered necessities. The amounts that are listed should be attainable, without too much sacrifice for the family’s basic needs. Before listing the amounts, think of areas where cuts can be made.
For example, if the family goes out to dinner twice a week, consider going out to dinner twice a month. Perhaps car-pooling to work with a coworker can save on fuel expense. Instead of going out to lunch every day at work, consider packing a lunch at home. There are probably many other areas where making some small sacrifice can add to the family’s financial goals.
- Food $500
- Clothing $200
- Entertainment $200
- Vehicle Fuel $100
- School Fees $250
- Home Maintenance $150
- Car Maintenance/Repairs $100
Total Monthly Expenditures $1,500
Personal Budget and Income Planning
The final step is to list all household income. The amount listed should be actual take-home pay. If the monthly income fluctuates, a monthly average should be used. If the total income for a given month is greater than the average listed, the difference should be set-aside for months that are below the average. For example, we’ll assume the total monthly family income is $5,000.
- Monthly Family Income $5,000
- Less Monthly Bills $2,500
- Less Monthly Expenditures $1,500
Total Monthly Overage $1,000
In this example, if the family adheres to the budget, there would a $1,000 overage every month. Depending on the family goals, the overage can be used for savings, reducing debt, taking a family vacation or paying for college tuition. For family security, it’s always a good idea to have a certain amount in savings. Once that predetermined amount is set-aside in savings, then other family financial goals should be attempted.