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A Little Here, A Little There  
Establishing and adhering to a household budget can open your eyes to money seeping out of your family finances.


A Little Here, A Little There
Establishing a household budget

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Gerber Life Family Times Archive

FinancialIt gets you at the gas pump. It gets you at the supermarket. It finds you at the mailbox with each new utility bill or credit card bill you open. Little by little, bit-by-bit, the cost of living and paying life's daily expenses is increasing. Whether it's an increase in real estate taxes that causes a sudden rise in your mortgage payment or the more sudden (and noticeable) shock we all feel at the service station when we give the family car a full tank of gas, it's safe to say that most paychecks don't go as far as they did even one year ago. Many of the items with increasing prices are staples of our daily existence. We need gas in order to get to work and we can't just stop buying eggs and milk simply because the price has suddenly increased. So what is a family supposed to do? One thing every family can do is to sit down and establish a household budget. In doing so, you'll get a realistic look at exactly where your household income goes on a daily, weekly, and monthly basis. Once you have your family's complete financial picture in-hand, you'll be better able to determine what expenses are necessary and also where unnecessary spending could be reduced or eliminated. When all is said and done, you'll be able to rest assured that the money you earn is being spent as efficiently as possible.

FinancialWhen it comes to taking full control of your financial situation and reaching your financial goals, the Foundation for Credit Education (FCE) says that establishing a realistic household budget is the key. The FCE adds that a budget should provide your family with two things: A plan for saving toward goals and development of a plan for spending. Put simply, a household budget is a realistic accounting of the money that comes into your home each month (your family's net income) and the money that goes out during the same period (your expenses). To aid you and your family in successfully implementing a household budget within your home, the FCE recommends the following basic rules:

  • Communication—Discuss the personal needs and wants of each member of your family. Children, as well as adults, need to feel they are part of the plan. When everyone plays part in the daily budgeting process there is a much greater chance that you will be able to develop and adhere to a realistic and workable household budget.
  • Cooperation—A financial partnership such as a household budget calls for the entire family to work together, which often requires compromise from family members. Financial decisions once made solely by mom or dad should now be discussed jointly and mutually agreed upon.
  • Control—A vital part of adhering to a household budget is for each family member to understand and believe that it is his or her responsibility to learn and practice control to avoid unnecessary spending. Such control comes through encouragement from other family members to avoid temptation, make better spending decisions, and stick to the budget. Since there is no one single budget formula that will work for all families, it is important to develop a budget plan that incorporates the specific needs and circumstances of your family members.

The FCE notes that in the process of determining your household budget, your goal should be to make sure it will help you do the following:

  • Make sound decisions about what you can afford
  • Avoid impulse spending
  • Detect expenses that can be reduced or eliminated
  • Repay debt
  • Increase your savings

In developing your household budget, the Federal Reserve emphasizes the need for record keeping, tracking, and review, noting that if you don't track your money, it probably isn't going where you really want. The Federal Reserve suggests writing down your monthly take-home pay. Then list your monthly expenses as they occur—remembering to track all of your expenses. The Federal Reserves suggests carrying a small notebook to help you record all of your purchases—including small things such as candy bars, parking fees, and morning coffee. At the end of the month total your expenses and subtract them from your total pay. Then you can look for places to save, use the information to set a monthly budget (with a specific amount designated for "savings"), and review how things are going at the end of each month.

The American Institute of Certified Public Accountants recommends the following steps for establishing a realistic household budget:

  • Add up all your income (salary, wages, interest, dividends, child support, etc.)
  • Add up all your expenses and divide them into two categories (to help you see where you have a choice in your spending)
  • Fixed expenses (housing, food, transportation, etc.)
  • Discretionary expenses (hobbies, entertainment, vacations, etc.)
  • Also identify any "out of pattern" expenses such as car maintenance, home repair, holiday gifts, etc.
  • To make sure you're not forgetting anything, look through cancelled checks, credit card statements, and receipts from the past year.
  • When possible, view your financial goals as "expenses" and contribute to them regularly

Once you have your income and expenses listed, compare the two totals. In order to "get ahead" you should be spending less than you earn. If so, you're on the right track. If not, you will need to look at your discretionary expenses and see where you can cut back on spending. The AICPA also notes that if you find yourself coming up short, don't worry. With some determination and self-discipline you'll be able to make up the difference.

To help you in developing your household budget, there are a number of free forms and calculators available online as well as home financial software packages that include such aids. Once a budget is in place, the AICPA notes that you will need to monitor it periodically and make changes when necessary. It also adds that you don't need to track every single penny you spend. In fact it is important to maintain some flexibility as any budget that is too rigid is destined to fail. The AICPA also notes the following tips for helping your family stay on the budget track:

  • Avoid using credit cards to pay for everyday expenses. Although it seems like you're spending less, your credit card debt continues to increase unless you pay off your card each month.
  • Build rewards into your budget such as eating out every other week.
  • Make the distinction between expenses that are "wants" (i.e., designer jeans), and "needs" (i.e., groceries).
  • Put your budget into effect when it will be easiest to stick with it (at the beginning of the year as opposed to right before the holidays).
  • Make budgeting part of your daily routine and stay disciplined.
  • Make sure the entire family is involved by agreeing on the budget up front and meeting regularly, as a family, to review your progress.

Budgeting is not just for challenging economic times. It's all too easy to spend "a dollar here and a dollar there" without realizing it. By taking a good look at your family's financial picture to see exactly where your hard-earned dollars are going, you'll be able to rest assured that you're spending your money efficiently. In addition, you'll also pass along to your children a healthy respect for the value of money.

As with all financial matters, consult with your financial advisor or tax advisor concerning your family's individual circumstances.

Foundation for Credit Education—
United States Federal Reserve System—
American Institute of Certified Public Accountants—

Articles are provided for the general interest of our readers. Gerber Life Insurance is not responsible for any content and recommends that you consult the appropriate professional with any questions or concerns you may have concerning any financial or health related issues.

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