A Budget for Everything: Personal Budget Let’s be honest, budgeting can be bothersome at times.
A Budget for Everything: Home
A home budget is a financial plan that considers the income and expenses of everyone in a household. It tracks how much money comes in and out of your house so that you can see where it’s going and budget accordingly. This article will cover why you need a home budget, the benefits of having one, and how to create one.
Why Is It Important to Have a Budget?
Budgeting can be a pain. Tracking expenses, setting savings aside, and eliminating non-essential purchases can be time-consuming and uncomfortable. Why, then, is it so important?
A Budget Ensures No Wasted Money
It would be easy if we had unlimited resources, but money doesn’t grow on trees. Budgets are a necessity when it comes to planning out our future goals. With our limited income, we have to decide which expenses are essential and which can be cut out. There is no way to ensure money is well spent if you don’t know where it’s going.
A Budget Helps You Set Meaningful Goals
Proper budgeting requires setting goals, such as buying a house or car or saving for retirement. Goal setting can help you make clear decisions, focus on what is most important, and ensure your spending habits align with your and your family’s needs.
Effective goals are realistic and trackable. You should always keep track of your spending and saving, and it can help to use budgeting tools. Use resources such as regular free printable expense sheets, or monthly calendars that mark paydays, bills coming due, birthdays, and holidays. The goal is to have a written plan for every dollar before you spend it, which helps ensure it’s going toward something important.
A Budget Helps You Forecast Your Expenses to Save in Important Areas
You can use a budget to forecast your spending and save in important areas such as retirement plans, college funds for kids, or other future goals. Keeping these items in mind every time you make purchases will help you focus on saving and eliminating non-essential expenses.
A Budget Makes the Savings Journey Easier
Having a good plan makes it easier to save money. There will likely be some setbacks along the way, but knowing where you started allows you to see how far you’ve come and track if there are any changes needed along the way. Without a budget, it can be easy to let go of spending habits without noticing whether or not you are nearing your financial goals.
Creating a Home Budget
How can you create a home budget? There are several ways to create a home budget, but the most important thing you can do is begin now. To get started, there are a few things that you should know: what goes into creating a budget, how much money you have coming in each month, and where your money will be going out next month, among other things.
You should sit down with your family or roommates and calculate your collective monthly income. This would include earned income, child support payments, alimony, or any other type of income coming to the family. You should also calculate monthly loan payments and set money aside for the payments. Once you have your estimated income for next month, it’s time to think about what else will happen during that same period.
Some common household budget categories that you should consider are:
- Utilities
- Rent and Mortgage
- Groceries
- Personal Care Items
- Transportation
- Entertainment/Dining Out
These are just a few examples to get the ball rolling; you can also create additional budget categories depending on your circumstances or budget items list.
After you have a list of your expenses, calculate the percentage of income that each item uses. An example is below.
Utilities:
- Electricity: 12% of total monthly income
- Water/Sewer: 12% of total monthly income
- Natural Gas: 14% of total monthly income
- Phone Bill: 15% of total monthly income
- Internet Service Provider Fee: No more than $55 per month
- Cable TV Fee: No more than $45 per month
Rent/Mortgage:
Your mortgage payments should be no more than 28% of your monthly income. To determine your mortgage budget, multiply your monthly income by 28%. Here is an example:
Monthly income: $5,000
$5,000 x .28 = $1,400
If you have paid off your mortgage, your budget may look quite different here. If you still have a mortgage to pay, avoid budgeting more than 28% of your monthly income for the home.
Groceries:
The cost of groceries will vary based on the size of the household. One of the best budgeting strategies is to incorporate your grocery expenses in the ‘essentials’ portion of the 50/30/20 budget, meaning you won’t spend more than 50% of your budget on groceries. This includes other household items such as laundry detergent and cleaning supplies.
If you have young children in the house or an elderly person living with you who requires special dietary needs, this percentage should be increased to accommodate these additional expenses.
Personal Care Items:
This would include cosmetics, shampoo, razors, shaving gel and cream, and deodorant.
If you are shopping for something specific like contact lenses and solutions each month, the budget for this category may be higher.
Transportation Expenses:
Experts recommend budgeting 10-15% of your monthly income on transportation, including gas, insurance, and car payments.
The American Automobile Association recommends saving at least $50 a month, per vehicle, for routine maintenance costs.
Once you calculate your income and expenses, it’s time to think about how much leftover money you will need at the end of next month. As we mentioned before, experts recommend setting aside 20% of your income for savings. If you can consistently save around 20%, you are well on your way to creating a home budget that works well for you and your family.
Blogs You May Like:
