One of the most-often used ways to gain control of a family's finances is through budgeting. In creating a budget, a family lists its expenses and income and creates a balance between the two. If there are more expenses than income, either expenses must be cut or income must be increased. Without the proper balance, it's easy to go into debt to meet expenses. However, a monthly budget does not need to be set in stone. It often needs to be flexible to accurately meet a family's needs, with room to make adjustments to categories as the need arises. With flexible budgeting, a family can plan for unexpected and large expenses or variable income and still avoid debt.
Basic Expenses and Income
The key to any budget is to know what your family needs on a month-to-month basis. Typically there is a list of necessary expenses that occur month in and month out; for example, housing, utilities, debt payments and car payments are typically made monthly. Additional expenses, such as entertainment, food, and discretionary spending, need to be factored in as well, but can be dealt with with some flexibility. In the months where less income occurs, the budget for these categories can be lowered to avoid dipping into savings to cover expenses. Make a list of all average monthly expenses and a list of all average monthly income. If you have variable income, look at the full amount of last year's income. Divide that amount by 12 and see if the resulting figure is enough to adequately cover each month's necessary expenses. This is the basis for your budget. If there is not enough income to meet your monthly expenses and your income is the same month to month, either make cuts to your spending or increase your income to balance the budget.
Throughout the year, there are typically expenses that occur periodically, but not each month. For example, car insurance and home insurance may be a once-a-year bill. In these cases you need to save up throughout the year to pay the bills. There are also unexpected expenses, such as those incurred as a result of an accident, an emergency or a fun, unplanned trip. Budget a monthly amount to go into a liquid savings account for unexpected expenses and for extras. This gives you some leeway in terms of spending and keeps emergencies from impacting your monthly budget line items. This is the most crucial part of a flexible budget and allows the family some leeway in lean income months.
If you make your living from commissions or bonuses, it is especially important to have a flexible budget. You need to be able to budget your funds over a longer time period than those who have the same income each pay period. Avoid overspending when a large paycheck comes in by dividing up the income over several months, as opposed to one. Save the variable income above your monthly needs for emergencies or fun splurges, while keeping enough to maintain your monthly needs until the next big paycheck.
Adjusting for Change
A budget does not have to be rigid or stifling to create financial balance. If you make it too restrictive, you may rebel and end up overspending. If you need extra funds for one month, lower next month's spending to make up for the added spending. For example, if you have a big party and need an extra $50 for groceries, if your grocery budget is typically $200 a month, subtract $50 from the next month's budget and tighten up your spending to meet next month's grocery needs.
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