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The Household Budget

Establishing a household budget stems from a desire to have the household finances under control, as well as the discipline to understand and maintain that control. To get started:   

First – recognize whether the household has a stable (regular) monthly income or whether the income varies from month to month. Use the actual expected amount in establishing the budget. Budgeting is not the place to wish or fantasize – work only with what you have. 

Second – list the household expenses. Household expenses should be divided into at least two sections:  

  • Essential expenses: Even if there is no income, these are items essential to living. For example, rent/mortgage payment, food, utilities, transportation and insurance. 
  • Non-essential expenses: These are items such as entertainment, new clothes, eating out and remodeling a home.   

This does not mean that non-essential expenses are unimportant. The idea is to find where any adjustments (i.e. reductions) to expenditures can be made if need be. Please note, not every single household expense fits neatly into the essential/non-essential category. A budget typically has some gray areas where items don’t fit either category. It is in this part of the budgeting process that careful thought and discipline are important. The process of budgeting has little value without that kind of thinking throughout. 

With a written budget as the household’s key tool for managing finances, one only needs to look at the budget to determine when extras can be permitted. It allows for both short-term and long-term saving goals and may be key in attaining financial objectives.