Smart Budget Basics

Have you been talking about a family budget, but aren’t sure where to start? Sometimes it’s good to start with the basics, such as the basic outline of a budget with categories you need to include. Here are some tips to help you create a simple family budget.

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Budget Basics

Income

The first place to start on your budget is with your income. There will be some estimating here, no doubt; but make sure it’s an estimate, not dreaming. The income area of your budget is not the place to write down ideals. Simply take a look at your net income over the last three months and estimate an average monthly income. Or you might have income that changes very little month-to-month; it should therefore be pretty easy to figure out your monthly income.

Expenses

Your next category should be expenses. It’s good to include enough detail that you have a grasp on where your money is going. But, splitting your expenses into dozens of little categories will probably only frustrate you. Try to make your categories general – “entertainment,” for example, is a more general category than “computer games, movies, cable, and DVDs” listed as separate categories. There will probably be more estimation here than in the income category. However, if you look over your bank records, receipts, and check register over the past month, you’ll have a clear picture what those expenses are.

As you break down your expenses into understandable categories and numbers, remember that charitable giving or any giving away of money should be also listed as an expenditure.

If you’ve not be great at keeping track of where you money goes, spend a month keeping a record of what you pay for. Keep a notebook handy and writing down every expense.  You’ll begin to get a clear picture of where you money is spent.

Actual Expenses

Estimation gives way to “real” numbers when you write down your actual expenses during the month. This is the last section of your budget plan. Keep a running tally of your expenses for several months, and then look at where you are.

Some Basic Principles

In budgeting, there are some principles that are considered basic. Here are some of them.

• Distinguish between wants and needs. This can be a hard one, but it’s vital for a budget to function properly. Beware of convincing yourself that a want is a need when it isn’t – you may just be trying to find an excuse to buy the item. Real needs are things like clothes, food, and shelter; but designer clothes, gourmet food, and an expensive apartment are more like wants!
• Expenses should not exceed income. You may find yourself surprised the first time you do a budget and discover that you actually don’t make enough money to cover your expenses. If you discover this, you need to look carefully at your income section and see where you can increase it, and look just as carefully at the expenses and see where you can make cuts.
• Don’t forget to set a budget for savings. Every budget should include a savings for emergencies and longer term goals. Your first goal should be toward $1000 for emergencies. Followed by a larger savings equal to 3 months pay.
• Does a chunk of your paycheck go to credit cards bills? After your emergency fund is put away, dedicate part of your income to paying more than minimums on those cards. Get them paid off and save yourself a ton of money long term.
• Consider taking up a side hustle to help fund your financial goals: paying off debts, saving for a home, etc.