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The Hood Magazine

Household Budgeting

Jan 25, 2017 09:45AM ● By Hood Magazine
By Karen Starr, Principal Financial Group

Ugh!!  It’s that time of year again when I think about the dreaded “B” word.  You know what I mean….b-b-b-budgeting! At the start of every year, I resolve to do a better job of managing our household budget. I set aside time to gather receipts and paystubs, download activity from our bank accounts and credit card statements and try to make sense of all the inflows and outflows.

Tracking the past is certainly an important step in the process. However, I have to remember it’s the decisions I make about spending money each day going forward that’s going to make the difference.

Budgeting is a simple math problem, right? Income minus savings and expenses equals zero. If you’ve ever put together a household budget, however, you know it’s not easy. How do you decide what’s important and where to spend most of your money? What if your expenses are consistently more than your income? What happens if there’s a large, unexpected expense? Creating a budget or rather, an intentional spending plan, based on your priorities and values can give you the answers and freedom from stress you’re looking for.

A Good Place to Start recommends a 50/30/20 budget plan as a good starting point. Spend roughly 50% of your take home pay on necessities, no more than 30% on wants and at least 20% on savings and debt repayment.

Wants vs. Needs
It can be tricky to distinguish between wants and needs. Each person defines it differently, and the topic can most certainly cause conflict between family members. I believe these conversations go more smoothly if you begin by working together to identify your financial priorities and desired outcomes.

For example, paying off credit cards in 2 years - then, work backwards to put a strategy in place to achieve the goal. If you are motivated to get out of debt as fast as you can, you may decide you can skip or delay some spending until you’ve made progress on the goal. Look for ways to trim spending on categories like groceries, entertainment, dining out and clothing.

Automate, Automate, Automate

Use technology to help you avoid the everyday hassle of managing money.

  • Set up direct paycheck deposit into more than one bank account. Route the bulk of your paycheck into an account for expenses, and automatically deposit the rest into a savings account you consider “untouchable,” making it easier to accumulate an emergency fund.
  • Take advantage of automatic deferrals into your employer-sponsored retirement plan such as a 401k or 403b. 
  • Sign up for electronic statements and use online bill payment. You’ll avoid late fees, save on postage and cut down on the number of checks that you write. It also can cut down on the risk of identity theft.
  • Use software to help you track spending, net worth and create different budgets from month to month based on actually expenses.

Work with a Financial Professional

It’s ok to ask for help. Finances are complex, time-consuming, and at times, intimidating. There is an abundance of financial information and advice available – make sure you find a financial professional whose experience and approach/process you trust.