Household Budgeting

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.

Monthly Income
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
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.

Discretionary Expenses
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.

Household Savings
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.

Checking Account Best Practices
A checking account is an account held at a bank or other financial institution for securely and quickly providing access to funds when you need them. Checking accounts are insured up to $250,000 or more through the FDIC. Money can be easily withdrawn by writing checks, using a debit card or visiting an ATM.

What should I do to properly use my checking account?

•  You must have enough money in your checking account to cover purchases made with a check or debit card. Should you happen to spend more than you have available in your checking account, you may have to pay what is called an "overdraft fee," for non-sufficient funds.
•  Be sure to check your statements regularly to ensure that all of your transactions and balance are correct.
•  Deposit checks right away. Most checks (including paychecks) cannot be cashed three months after they have been written. This should also be done as a courtesy to the writer of the check, as this makes keeping their statement balancing easier.
•  Stick to your financial institution's ATMs. Using other ATMs may be convenient, but are often expensive due to the extra fees they carry.
•  Keep accurate records of all the checks you write and debit card purchases you make. Be sure you sign for all debit card purchases and keep every receipt.
•  Make sure to sign your check last after you have completed it. Should a signed blank check become lost, anyone can cash it.
•  Never make a check out to "cash." This allows anyone to cash it should it become lost or stolen. Always write it to a specific person or business on the "pay to the order of" section of the check.
•  If your checks become lost or stolen, immediately notify your financial institution and the police.
•  Remember to record all the checks you write in your checkbook register.
•  Always use a pen when writing a check.
•  It is important to fill out every written portion of the check, leaving no room for anyone to write in something else. This is to prevent someone from adding numbers to make the check a larger amount or altering the payee's name.
•  Should you make a mistake on a check, tear it up and start with a new one. Do not attempt to fix the mistake.
•  If a mistake is made on a check, write "void" across the check itself and record it as such in your checking account register.