Courtesy North Dallas Bank & Trust, North Dallas LIVING WELL Magazine
In a time where the median household income is shrinking in nearly every major city, prices of goods and services are on the rise and credit card debt is just beginning to decline from an all-time high, it is easy to find yourself falling behind on monthly expenses. If this is the case, then it may be time to start learning the basics of household budgeting.
Rule number one: Household income must be greater than household expenses. Seems simple enough. However, it’s surprising how many families break this rule, and then borrow money to pay off their expenses, thus creating more expenses. This short-sighted strategy can lead to great problems if done on a monthly basis.
Rule number two is less of a rule and more an avoidance of common mistakes in budgeting. It is important to remember that your household income cannot simply equal your expenses. This only works if you intend to work for your entire life. The best way to sidestep this mistake is to put money aside every month before paying anyone else. This way you are assured that you will not simply set aside what is left over.
Creating a Household Budget
A household budget should be broken down into three main sections every month: income, mandatory expenses and discretionary expenses.
This portion of your household budget should account for all household means of income you have, including paychecks, interest income, tax refunds and stock dividends. You can include bonus payments and gifts of money should you desire, but it is best to simply use only reliable sources of income that can be depended on each month.
Mandatory expenses are monthly bills necessary to maintain your home, job and a healthy life for your family. These include mortgage payments, car loans or lease payments, property taxes, energy bills and other utilities. You must also include life insurance, health care costs, childcare, commuting expenses and groceries. And don’t forget the money you are setting aside for the future. Consider that a mandatory expense as well.
This is the most difficult portion of the budgeting process. This is where you evaluate all of your spending decisions and figure out what is necessary and what is not.
Examples of discretionary expenses include going to the movies, dining out at restaurants, extravagant vacations, expensive clothing and other luxury items. It should be easy to determine which expenses are discretionary and which are not.
The best place to examine your spending patterns is your monthly credit card statement. Take a close look at several credit card statements; you might be surprised at what you see.
After determining your total income and separating your expenses into categories, it should be simple to determine if your budget is balancing. The goal, of course, is a balanced budget, but you will probably find that you are running a budget deficit or surplus. The best way to find out is to simply subtract your expenses from your income.
Household Income – Household Expenses = Household Savings
If the value for household savings is negative, then you have a deficit. If the value is zero, then it is balanced. If it’s positive, then you’re running a surplus, which is the sign of a good budget.
Keeping a balanced budget is one of the more important duties involved with running a household. It can be a daunting task, and may involve cutting back on some luxuries, but living a life free of debt will greatly outweigh the sacrifice.
To learn more about North Dallas Bank & Trust and find more helpful information, visit their website ndbt.com or call 972-716-7100.