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Simple Steps to Building a Budget and Balancing Household Expences

Basic Household Budgeting

When we found out that I was pregnant we did not realize the true financial impact baby would have on our household. My husband and I both worked and although gross, he makes more than I do, after taxes there is only about a $100 difference between our salaries. Basically, I bring in just under fifty percent of the household income. We did not live extravagantly but we were privileged enough prior to baby to have some disposable income so if we wanted to go away for a weekend or out for dinner, it was possible.

When I was three months pregnant, I had some complications and my doctor order me to stay home which later led to full bed rest. Luckily I work for a fantastic company that covered my salary in full for the first six weeks and then at sixty percent for as long as needed but with a baby on the way I was worried about the drop in income which was going to be followed by maternity leave which was yet another huge drop in income. With all of the extra time I had on my hands I read books and watched shows about people who were in debt getting out of debt and figured if they could do that, we would be okay. Here are a few things I learned:

Planning
Being fiscally responsible in most areas of life comes down to planning. My husband and I never had made a budget and really had no idea where are money was going. If you can track how much you are spending and where, you can trim your budget and live for much less. If you do not know where the money goes how are you going to stop it from going?

Budgeting
There are two great ways to start a budget:

1. For one month keep all of your receipts (including bill payments), at the end of the month organize and calculate where your money is going. From this you can calculate exactly what percentage of your household income goes where.

2. Start with looking at your fixed expenses, house, car, phone, cable, etc. Categorize and calculate what your fixed expenses are as a base. Then calculate and categorize all of the variables: entertainment, restaurants, groceries, gas, etc.

Basic Categories

Income
Start with your income:
Calculate how much you make per month, both gross and net (before and after tax)

simple equations: Yearly Gross Income / 12 months and Yearly Net Income / 12

If your income varies month-to-month always use the month that you make the least as your base.

Fixed Expenses
Fixed expenses are the bare-bones-basics, the expenses that are the same each month and are the essentials. Take your fixed expenses and categorize them as follows:

Savings
How much money are you currently putting away each month for emergencies, home repair etc.? If currently there is nothing to put away, it's okay you will get there.

Debt
Do you owe any money? If yes, write down what you owe and what the interest rates are. List from highest interest rate to lowest.

Housing
Find out how much you are spending monthly on:
Mortgage;
Property Tax;
Insurance;
Electricity;
Gas & Water;
HOA, Condo Fees, Maintenance

Life
Find out how much you are spending monthly on:
Electricity;
Telephone;
Cell Phone;
Internet;
Childcare;
Life Insurance;
Health Insurance

Transportation
Find out how much you are spending monthly on:
Car Payments; and
Car Insurance

Variable Expenses
Variable expenses are the expenses that change day-to-day, month-to month. Take your variable expenses and categorize them as follows:

Food (falls under life)
Groceries
Personal Care

Entertainment (falls under life)
Hobbies
Sport
Memberships
Restaurants
Movies

Transportation
Gas
Oil/Changes
Public Transit
Parking
Taxis

Other
Anything else you spend money on such as, donations, pet expenses, child allowances, clothing, gifts, etc.

After the Categorization and Calculations
Once you know where each penny is going, figure out if there are any areas that could be trimmed. Ideally your budget should breakdown as follows:

No more than 35% of your income should go to housing expenses;
No more than 25% of your income should go to life expenses;
No more than 15% of your income should go to debt repayment;
No more than 15% of your income should go to transportation;
At least 10% of your income should go into savings (about half of which should be available for emergencies)

Here are some tips to work with what you have and trim it down:

Ask for a lower interest rate on your credit card;
Negotiate a better mortgage rate;
Reduce your bank fees (all it takes is a call to the bank or planning to have cash on you);
Shop around for your insurance;
Clip coupons for the grocery store and plan meals based on what is on sale;
Pay off outstanding debts based on which has the highest interest rate;
Always make more than the minimum payment;
Stop shopping (or at least cut back) think about every purchase and always shop for the best bargain;
If there is something you want, plan to save for it;
Plan meals at home and make your own coffee;

Review Often
Once you are organized, continue to keep track of your expenses and continue to think about what you are spending. If you find you don't have enough money you may need to consider finding ways to bring in more. If you find you have a lot of leftover money (after the 10% of savings), put more of it away for a rainy day or something fabulous that you previously thought you couldn't afford.