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How to Manage Your Household Budget

December 17th, 2009

household-budgeting.jpgHow are you facing up to today’s rising cost of living? Are you like the majority of households who struggle with their budget and pinch their metaphorical pennies, but however tightly they squeeze, they can never manage to have enough money to last to the end of the month? “If there is money, this is well and good, but if there is none, we’ll just have to make do with what we have” is a philosophy that is hardly realistic. It is inconveniently fatalistic.

There is a sensible and workable attitude that should help you make ends meet, provided that the ends are not so far apart or the income too small to provide basic sustenance. Below are some sound pointers to handle your family’s finances.

The Household Budget

For most people it seems to be true that there is never enough, however much a family earns, to cover their needs. This is because as each family earns more, its lifestyle and its needs also become higher. Lifestyles and resources vary from family to family, with different preferences for a philosophy or attitude toward money and the way it is spent.

Each family should define its goals. What is it that the family wants out of life? Define priorities. Is it education, a house, entertainment? Next, the family should take stock of its earning capacity. Then it should devise a spending program, also known as a family financial plan:

1. Set aside 10% to 20% of the monthly income for savings and investments.

2. Determine the fixed expenses — how much money does the family need each month for rent, mortgage payments, utility bills, salaries for any employees, monthly amortizations for cars, household appliances, etc.

3. The remainder of the income goes to variable expenses. This includes things like food, clothing, gifts, and children’s allowances.

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The best time to prepare this spending plan is after Christmas and before New Year. During this time the needs of the year that has just passed are still fresh and it can be used as the basis for a realistic spending plan for the following year. Unless you are already very wealthy, expect to deal with the issue of making compromises. The family priorities have to be taken into consideration.

The Savings

Most people who are significant income earners in a household will want to plan for the future security of their families. This is being realistic. One never knows when financial setbacks will come. In setting aside 10% to 20% of whatever income the family makes today, one provides for contingencies. It is easy to do this. The family sets its fiscal policy so that it can operate on the income that is left over after banking the savings.

If the monthly income is so small that it is impractical to set aside the 10% or 20% each month, the family should determine a fixed sum to be set aside as savings. No matter how small the sum, the important thing is to set aside that sum consistently. Through the magic of compound interest, it is possible to increase your cash reserves to the point where you can sustain yourself with the passive income from your savings and investments.

This article on household budget management was sent to us by “jhalrem” from the DigitalPoint forums and has been modified somewhat for better readability.

One Response to “How to Manage Your Household Budget”

  1. comment number 1 by: tips on budgeting

    Thanks for sharing such great post, according to me budgeting doesn’t mean that you have to compromise your needs but it is important for planning financial life. Household Budgeting means to create a planning for the money spending. Build emergency fund, minimize the use of credit card, planning, etc. are the tips for making personal household budgeting.

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