One of the most important steps in financial responsibility is setting up a family budget. This budget will give you guidance in your spending, bring attention to your spending habits and help you gain and maintain financial independence. But how do you set up a realistic budget?
Start by listing your monthly income. List only that income you can count on – the money that you earn from your job or get from some other source every month. If you get an annual, semi-annual or quarterly annuity from some source, divide that by the number of months in the payment period and only consider that amount for that month.
Next, it’s time to list expenses. Start with the necessities that you pay on a weekly or monthly basis. Car payments, house payment or rent, utilities and any loan payments should top the list. When figuring credit card payments, start by assuming that you’ll pay the minimums due. This isn’t a good practice, but it is a good way to get your budget started.
Next, list all those payments that fall due less than weekly or monthly. Insurance is often paid either by semi-annually or annually. Property taxes and income taxes, if you have to pay either of these, are other examples. The best budget will call for setting aside a portion of that expense every month so that when the payment is due, the money is available. If you can’t manage to leave the money in your regular account, try setting up a separate account that will be used only for these few bills and savings.
Add in transportation, clothing, food and other expenses that you face. Remember to include entertainment on your budget. If you never allow yourself fun, you’ll soon loose your desire to work. You should also budget some amount for savings in the event of emergencies.
Comparing the income with the amount you need should give you a realistic view of your financial status. After you’ve reached this point, consider how much more you can pay toward credit card debt and other loans and debts each month. Don’t add to these debts unless you have a realistic way to pay them off.
