Deciding on your new household's budget is one of the most important things you can do for your future. Getting off to the right financial start and staying on track will help you with everything from daily spending to planning for retirement. Unfortunately, there is no "one size fits all" budget, but there are several universal factors you should use to form your own household budget.
Tracking Income and Spending
To decide how much you can responsibly spend you need to first figure out how much your household actually brings in. Look at your paycheck rather than your salary to see net monthly income. Before setting any budget, take a month to track your spending. You could use computer software if that helps you, or write down expenditures in a "spending journal." Figuring out how much you're spending versus how much you're bringing in will help you discern what you can really afford and where you can cut costs.
Creating a Budget
A 2010 article in "Forbes" magazine recommends "percentage budgeting" as the best way for people just starting out to form a budget. The concept is to create a custom budget for your household based on an after-tax percentage rather than a dollar amount. To give you an idea of how much you should allocate for basic expenditures, plan to spend no more than 35 percent on housing; up to 15 percent on transportation; and 15 percent on food. Utilities come in around 5 percent and, sadly, entertainment falls at the bottom with 1 to 5 percent.
Depending on your financial situation, you may find you have to cut costs to stay within your new budget. Honestly discuss and decide whether you truly "need" certain things that come in the form of monthly bills. For example, you may have always thought of cable as a necessity, but by cutting that bill you might find you have not only more money in the bank but also time on your hands!
"Forbes" magazine cautions in "Custom Budgeting for Young Adults" that "One of the biggest priorities for young adults needs to be establishing an emergency nest egg for a true emergency." Putting aside money out of your paycheck can seem like a daunting task; to help, take advantage of employer-sponsored savings plans. The money will come out of your paycheck before you have a chance to spend it, and some companies will even match your contributions.
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