If you are planning a budget for your household, following a few simple guidelines will make the process less complicated and more effective. While budgeting is probably not something you want to do, knowing where your money goes each month is an essential part of the equation that will help you plan for the future while keeping your present on an even financial footing.
When developing your home budget, consider spending parameters recommended by financial professionals. Mortgage or rent payments, taxes, insurance and utilities should not account for more than 35 percent of your income. Figure on spending up to 20 percent of your take-home pay on costs relating to transportation, such as gasoline, vehicle payments, insurance and ongoing maintenance. Miscellaneous expenses include food, medical bills and clothing and tip the scale at 20 percent. Debt payments should not account for any more than 15 percent of your budget. That leaves 10 percent for discretionary spending.
Needs vs. Wants
An essential aspect of the budgeting process is determining whether a budget item is a need or a want. Home budgets meet with disaster because consumers fail to follow budget guidelines and differentiate between the two. Before entering a budget item for a future purchase, ask yourself, do I need it? If not, it’s a want, not a need, and if you do not have the resources to purchase it without incurring more debt, pass on it.
It’s human nature to want something and want it now, rather than saving for it. But using credit and credit cards to fund impulse or unnecessary purchases rather than saving for them is a recipe for financial disaster. Budget guidelines suggest you consider directing a minimum of 10 percent of your paycheck towards savings and investments. By employing this tactic, your bottom line can grow quickly.
While not an easy thing to manage, establishing your emergency fund is key. Ask yourself what would happen if you or your significant other lost your job tomorrow. Without an emergency fund, your financial well-being could be in jeopardy. Budget guidelines suggest that you stash at least three months of expenses. Avoid financial disaster, make capitalizing your emergency fund a priority.
Cheryl Withrow is a writer in Michigan’s untamed Upper Peninsula. Following a teaching career she served alternately as editor of the "Washington County News" and the "Geneva County Reaper," and as associate editor of "Bay Life" magazine. Withrow holds a Bachelor of Science in business with a major in accountancy from Wright State University and a Bachelor of Arts in English from Ohio University.