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Starting A Household Budget

The numbers can be staggering. Over 60 percent of Americans don’t have enough money to cover a $500 emergency. Nearly 80 percent are living paycheck to paycheck. The average American has about $38,000 in personal debt, excluding home mortgages. Combine those numbers with the fact that fewer than 40 percent stick try to maintain some sort of budget, and you’ve got a financial mess.


Maybe you don’t keep a budget because you think it is too time-consuming or too intimidating. The truth is, a budget can take as little as an hour to get started; and once created, probably 30 minutes a month to maintain.


If you’re at the point where you understand that the family budget is an important tool towards financial health; but you have absolutely no idea how to get started, keep reading. And, don’t be afraid. Here are a few steps that can help you move forward.

  • Remember, this is a process.

There is no one right way to establish your family budget. Nor are their perfect percentages of your income that should go towards each category. Every step, even if it’s a small one towards your budget, is a step in the right direction. Every month, you’ll adjust numbers and get closer and closer to what you can maintain. Before long, you’ll find yourself managing your money instead of your credit cards and interest rates managing you.

  • Determine current income/expenses.

Gather your financial documents. You want to pull together all pay stubs, bank statements, bills, etc. – everything that shows money going in or out. With this, you can identify your starting point – your income, fixed expenses, debt, and disposable income.

  • Where are you currently spending?

Beyond your fixed expenses and debt, track where you have been spending your money – dining out, clothes, entertainment, subscriptions, etc. If it’s too difficult to go backwards, don’t worry about it. Commit to tracking your expenditures for the next 30 days. Then you can come back with an idea of where your money has gone.

  • Establish spending boundaries.

Here’s where it gets tough and where some people just throw up their hands and give up. Now that you know what you have been spending, try and set some boundaries. But be realistic. If you feel you will be successful setting smaller goals, then do it. Any step forward is just that, forward progress. Just don’t quit.

  • Identify ways to free up some money.

Whether marked for debt or savings, you want to find extra cash to improve your financial situation. At this point, either – reducing debt or increasing savings – makes things better. There are probably as many different theories about how to do this as there are financial advisors. Do what is comfortable for you. Take steps that will lead to small wins. Those smaller wins will lead to greater victories and, eventually, financial independence.

  • Pay off debt.

Let’s face it, debt is a tremendous burden. And when we talk about debt, we typically are not including a home mortgage. Paying that off will come later. But for now, you should start paying a fixed amount towards your debt. Then, as any additional funds become available, make it your priority to put it towards the debt. As for what to pay off first – higher interest rates or lowest balances – it doesn’t matter as much as following a consistent plan.

  • Establish an emergency fund.

Unfortunately, we don’t know what tomorrow holds. Whether it be a flat tire, a broken water heater, an unexpected illness, or a sudden loss of your job, emergencies are going to come up. The worst way to pay for these emergencies is by piling on credit card debt. From someone who has been there, even a small emergency fund can keep your family operational – at least for the short term. I recommend keeping at least ____ months of fixed expenses set aside for emergencies. Just those few weeks/months can provide time to formulate a plan.


Having life insurance and a will can also help protect your family if something should happen to you or your spouse. The peace of mind that comes from having these in place far outweigh the costs.

  • Evaluate and adjust.

If your budget doesn’t balance, don’t fear. And certainly, don’t quit. Remember where we started – this is a process. Continue making adjustments – sometimes small, sometimes large. Every step forward, even if it is a tiny step, will move you closer to financial health independence.


As your financial foundation becomes stronger, you’ll then have the resources to start working towards longer-term goals, whether it be investment, retirement planning, or both. If you haven’t already, it may be time to work with a financial advisor. Having a reliable financial advisor can help navigate potentially sticky situations as well as help make sound financial decisions. Even the strongest go-getters out there don’t have all the answers, all the time.

 
 
 

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