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It’s not something we like to do, or even think about, but it is important to create a family budget and financial plan. Creating financial goals can help us with everything from reducing stress in our lives to helping our children attend college. But some of us need help creating a budget. Let this instructions help you create your family budget.
To create a family budget, start with gathering information. Create a file folder with these necessary items:
1. Information on all of your Installment Debts: These can be credit cards, mortgage, installment loans, etc. You need to obtain your outstanding balances, interest rates, and minimum monthly payments.
2. Information on monthly Fixed Expenses: This would include monthly, routine bills like utilities, phone, insurance, cable, and rent (Don’t include things like food, clothing, gasoline, etc. We will get to those later). Some of these items will, of course, vary a little from month to month, so you will need to estimate.
3. Income statistics: Think about not only your main occupation, but other sources of income, like child support or alimony. You will need this information in order to properly calculate your budget.
Now, add up your monthly net “pay,” from all sources of income.
Take this amount, and subtract the minimum payments for monthly debts and fixed expenses (computed above). The difference is your net margin.
Next, determine how much you need per month to cover the essentials, such as food, clothing, gasoline, etc., plus how much you want to give yourself for entertainment and recreation. They key is what you need, not what you want and giving yourself too much leeway for spending.
Don’t cheat yourself by making this figure too low. You should always allow some extra money for fun, and for unexpected expenses. Subtract this from your net margin. What’s left is excess money.
Here’s an example:
Monthly Net Income:…………………4,000
Monthly Installment Debt:……………-1,800
What Should be Done with the Extra Money?:
In this example, the family has excess funds of $700 per month.
You can use the extra money three different ways (or a combination): Save or invest; spend; or apply it toward debt.
What you decide to do is a matter of personal preference, but I think it’s best to take a balanced approach. Every individual or family should strive to save or invest at least some of their excess money. However, there is no need to save all of it. The same is true with spending and debt elimination.
Each situation is a little different. Perhaps you have several high interest credit cards. If you do, then it would make the most sense to apply most (but not all) of your excess funds toward the elimination of this debt. Any debt with an interest rate over 15% annually should be placed on the chopping block as a priority to pay off and get rid of. Another suggestion is to try to eliminate debts quickly if they have a low outstanding balance. Even if a debt has a low interest rate, a small outstanding balance means it can be eliminated quickly, and that will mean an increased net margin and even more excess funds than before. For example, if you have a small balance on a credit card at Home Depot of $300.00 take advantage of that and pay it off.
Are you wondering what to do as your excess funds increase?
As you slowly eliminate debt, your excess funds will increase and you will then need to decide exactly what to do with the extra money. Other ways your excess funds may increase is when you receive a pay increase or extra income from an additional job, and you should at that time take a look at what to do with that little bit of extra money. Again, everyone’s situation is different, but a balanced approach is best. Some of the excess funds should go toward increased savings; some toward personal spending; and the rest toward debt elimination. If you continue to manage your money properly, your margin of safety will keep going up, giving you more and more flexibility and control over your personal finance and, ultimately, a better and more enjoyable lifestyle.
Final Words of Advice:
Budgeting is not as difficult as it might seem at first. It only takes a small effort to organize and plan your monthly inflow and outflow of cash, and then determine what you have left over for savings, spending, or debt elimination.
Don’t cheat yourself by saving too much. Contrary to what you may have been taught, savings and investment can be taken too far. If you save excessively, you will deprive yourself and your family of any enjoyment. Yes, the future is important and yes, you should always set aside money for retirement and for a rainy day. But setting aside all of your extra money for the future means you will be neglecting the present. A secure retirement is certainly something to strive for, but do you really want to postpone all forms of fun and recreation until you turn 65?
Always be responsible. Pay your bills; buy what you need; and then allocate the excess funds toward debt, savings, and extra spending, based on whichever need is most critical for your situation. It is usually best to apply the largest portion of excess funds toward debt elimination, but savings and personal spending should also receive their piece of the pie.
Whatever you decide to do, a little planning is crucial to get your budget in order and under control. Creating a family budget doesn’t take that much time, and it will work wonders for your family’s security and well- being.
It pays to start planning now.
For help with your family’s financial planning for the future with Houston area financial planners contact any one of these local offices of many nationally known financial planning offices:
Chase Bank and ATM
James Devore – Allstate Financial Services
Edward M. Gardner P. C., C. P. A.
Ameriprise Financial: Kardesch Matthew P
Find reviews on many Houston area financial planners here.