Basic Home Budget
Most of us are well aware of where our paycheck originates. Unfortunately, we may not always know where that money inevitably goes. Creating a spending plan, or a basic home budget, can not only help us track our spending but facilitate a regular savings plan to achieve both short-term and long-term financial goals. Looking back over several months of prior spending such as reviewing transactions recorded in a personal checkbook, can help considerably in categorizing where the money goes, or has gone, when setting up a home budget.
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Sources of Income
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The first step in creating a basic home budget is to total up income from all sources to determine the amount of funds we have to spend. Standard income sources include wages and salaries. Regular payments from investments, royalties, child support, and other not-so-common sources of income should be included, if the amounts are dependable and expected to be consistently forthcoming.
Necessary Expenses
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At the top of the list of allocated expenses in a basic home budget are housing costs -- mortgage or rent payments, utilities, property taxes and insurance. Home telephone service may be considered a necessary expense. However, long-distance calling is generally a discretionary expense. Expenses incurred from owning an automobile, such as the cost of gasoline, maintenance and auto insurance, are necessary in many home budgets. Other necessary expenses, depending on individual circumstances, include childcare, babysitting and lawn maintenance. Regular payments toward credit card balances, auto loans and personal loans are expenses that should be accounted for in a basic home budget. A regular contribution to an emergency savings fund should also be considered a necessary expense.
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Discretionary Expenses
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Food, prepared and eaten at home and school lunches for children are certainly necessary expenses. However, eating out is a discretionary expense whereas the grocery portion of the budget is necessary. Pet care, including the costs of food and vet services, should be included in expenses. Other discretionary expense categories include clothing and laundry, home furnishings and household items, personal care, such as hair cuts and toiletries, and health care -- medical, dental, eye care and prescription drugs. Extraneous expenses included in an entertainment slot of a budget may include costs for travel, movies, books, periodicals, Internet service, video rentals, and cable or satellite television service.
Irregular Expenses and Records
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When preparing a budget, certain expenses that may need to be considered include items paid once a year or irregularly, such as membership dues, auto registration, birthday and holiday gifts, and some insurance premiums. Other irregular expenses may include charitable contributions and school supplies. Financial advisers recommend maintaining and reviewing records as a means to achieving goals within the context of a home budget. In addition, accurate records are a time-saver at tax time. Consistent records will also facilitate adjusting the budget categories as needed over time.
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