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Household BudgetAmericans lead the world in their low savings rate and large debt loads. With home refinancing, credit cards, home equity loans, many households have taken on more debt than they can handle. Saving money and investing can be difficult. Getting out of debt can be even harder. The first step in both instances is to get a handle on your family finances. Without understanding where your money comes from and where it goes, planning, budgeting, and saving are almost impossible. In this guide, we will take a look at an average family budget and spending plan to help give you some ideas of where you can save money and improve your financial situation.
Financial Planning - Building a BudgetThere are a number of software programs to help you with your home finances, like Intuit's Quicken. Quicken makes it easy to track monthly expenses, manage regular payments, monitor investments, balance your checkbook, and much more. But building and tracking a budget can just as easily be done on paper if you don't have a computer. A budget is composed of two simple things: income and expenses. Most people get their income from a job, and your monthly budget will start with your income - how much money you have coming in each month. If you receive other income, like trust income, spousal support, child support, social security, etc. include that in your income calculation for the month. Add it all up, and you know what your monthly resources are. Next come the monthly expenses. Most people have the same collection of bills they need to pay each month. We will outline the major expense categories below.Normal Monthly Expenses:
How can I save money? Adding up all your monthly expenses tell you how much money you need each month to break even and pay all your bills. If your income doesn't cover your expenses, you have 3 options -- cut back on your spending, get another job and increase your income, or go into debt by borrowing money to pay your bills (credit card debt, more home equity loans, etc). Going into debt will simply increase the last item in your expense budget (other debt), meaning your expenses will keep increasing each month, meaning more debt, etc. So to get ahead, you need to focus on increasing your income or decreasing your spending, NOT taking on more debt. Smart Finances - Getting Rid of DebtBeing smart with money is a learned skill and a habit. Once you learn about managing your money and being responsible with your spending, once you understand how credit card debt hurts you, you can begin to act on this knowledge and develop ongoing good money habits. When you find a way to save $200 a month and see your investments grow each month instead of your debt, you'll find it addictive and empowering. The fact is we live in a country with no financial limits, for good or bad. You can run yourself into bankruptcy, or you can become a millionaire. Even plain-old regular people with a high school education or less have become wealthy in this country - millions of them (mostly by starting and running their own businesses). So start with a budget, understand your monthly numbers, and move on from there.
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