How to Build a Family Budget

Planning & Saving
on December 31, 2000

Would you like to start the new year with less worry and more control of your finances? Then consider budgeting. Here’s how to create a simple budget to help save money and reduce stress at home.

First, determine your current financial situationmonthly income and expenses. If you have no regular paycheck, average your annual income to get this number. Subtract taxes and other automatic deductions (retirement savings, medical insurance, etc.) from the Gross to get your Net Income.

Next, discover where your money goes. Create separate columns for monthly expense categories: housing, utilities, food, transportation, clothing, medical, insurance, debts, entertainment, savings, charitable giving, and miscellaneous. Record your average spending in each category for the last three months. Include items requiring annual payments, such as insurance, taxes, or subscriptions. Now track your cash spending for 30 days, placing every penny in the proper category. Keep a notebook in the car, or save receipts to enter in a ledger. Then add these categories to determine your Total Monthly Expenses.

Now subtract your Total Monthly Expenses from your Net Income. If it’s not a positive, or “plus” number, don’t despair. Just sit down and take a hard look at the numbers. Do these figures represent your priorities and goals? Which costs can be reduced easily? Figure ways to adjust spending in specific categories. Even “fixed” expenses, such as housing, transportation, and food can be reduced if they’re out of proportion. Typically, if the total of these three expenses exceeds 65 percent of your Net Income, you probably need to downsize.

At this point, live within your budget for a few months. Verify your actual expenses versus your estimates and continue tracking expenditures. If you find you’re spending more than assumed in an area, reallocate funds or cut spending. A budget is meant to be a working guide, so adjust it as your situation dictates.

And whatever you do, stick with it. A practical budget requires persistence as well as flexibility. It may take up to six months of modifications to get a plan that your family can live with. But when it’s followed, you’ll have financial freedom and peace of mindboth of which are priceless.

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