Episode 5d--Creating a Household Budget

 

[5D] Money: Developing a Household Budget

 

Hello, I’m Feroz Bashari, and I’m going to share with you how you can hold on to your money.

[Major points]

 

1.       If you budget your money you are more likely to be able to pay all your bills.

2.       If you budget your money you are more likely to have savings when you need it.

3.       A budget can give you a feeling of control of your money.

4.       If you budget your money your friends are likely to admire how well you manage your life.

5.      Remember the 50 30 20  rule.  Spend 50 percent on necessities, 30% on what you want to have, and 20% for savings and retirement.

 

First, let me tell you a story. Ronald Reed was an average American.  In fact, he made less money than the average American, working as a gas station attendant.  Despite the fact that he did not make much money, he had a plan.  He had a budget for what he would spend and what he would save.  It began to grow very slowly at first, but it grew as he invested it.  When he died at age 92 he had $8 million!  How was he able to do that?  He was able to because he had a plan.  He had a budget.  He did try to buy showy or expensive things.  He saved much of his money, and by doing so it grew to an almost unbelievable degree.

Ronald Reed paid attention to what was happening to his money.  Who keeps track of the money in your house?  Does anyone keep track of it?

In America bills are sometimes paid by the wife and sometimes by the husband, depending on the family.  One spouse might be better with handling money than the other.  However, it is even better if both spouses participate in the budget process.

Traditionally, balancing the checkbook is a way of understanding which bills have been paid and which have not, as well as which checks are outstanding.

At least one of the two spouses needs to have an understanding of how much money is in the bank and how much is available to be spent.  Generally, this requires having a budget.

Most families need to have a budget. Why?  There could be a variety of reasons:

You could be planning on having another child.

You could be over your head in credit card debt.

You could be planning for retirement.

You could be planning to buy a house.

Both Muslims and Christians will sometimes say that the future is in the hands of God. However, there is also an American saying that God helps those who help themselves, meaning that we are not supposed to sit back and passively let him do everything for us.  A budget is a way for us to take control of our finances.

A budget anticipates what our family will need and plans for saving some for unexpected expenses.

In the process of creating a budget, you may immediately find ways of saving money. For example, you might discover that you're spending too much money on lottery tickets.  Lottery tickets generally are a bad investment and are a way of throwing away money.

Now let’s start devising a budget for you.  First you need to have some categories, such as food and   housing.  The second step is to assign a dollar figure to that category per month.  Your first budget’s dollar figures may be simply a guess. You can come up with a good estimate by looking at all the information that you have available from your checking account and your pay stubs. It is very likely that at first you will need to revise your budget each month. 

You can use one of the digital apps that are now available for a household budget. Almost all computers, tablets, and smart phones come with some type of free spreadsheet program or app.  Each expenditure can be put onto the spreadsheet which will automatically tally how much you have spent in that category and how much you have spent overall.  Spreadsheets can also tally how much you have left in your budget in that category for the month and how much you have left overall.

 

                                 [Put a screenshot here of the basic categories mentioned

                                   Below.]

 

First and foremost, a budget needs to consider the necessities.  You have to have a place to live, such as an apartment or house.  You have to pay rent or a mortgage payment.

You need savings for the future.  Social Security is not likely to be enough to allow you to retire.

Another absolute necessity is food.  There are formulas to estimate what you will need to spend.  But you can track how much you spend for groceries, and then use that figure.

Almost everybody needs transportation.  This normally includes an automobile payment, gasoline, car insurance, and auto maintenance and repair.  If you do not own an automobile, this category might include money for bus fares.

Clothing is a major expense, especially for large families.

Utilities are an absolute necessity, such as water, trash pickup, electricity, and natural gas. A cell phone is considered by many to be a necessity.

Doctor visits and medicine also have to be included.  If you do not have insurance this could be very large.  Hopefully you will always have insurance.

Insurance might include life insurance, health insurance, home insurance, and car insurance.  Your first budget is not likely to include all of these, but as you make money and save it, you are likely to need more and more insurance.  Remember, insurance is a way of protecting your hard earned money.

Some families would need to budget educational expenses for their children.  This would include notebooks, pens, books, and school fees.

For many families child care is a major expense. In Oklahoma and most other states there is assistance to pay for childcare, depending on family income.  If you receive child care assistance this can be omitted from the budget.

Many people have a line item for a charity.  If you cannot afford much, then just give what you can.  You can increase it at some time in the future.

You may also want to include haircuts, gifts, and entertainment.

Leave some room in the budget for fun.  If a budget is too strict it will be hard to stick to it and one might decide to forget about it altogether.

 

 

Once you have created a financial budget, consider some psychological issues:

Give yourself a pat on the back for designing a budget and then another pat on the back when you keep it.  Tell yourself you are doing a good job and allow yourself to feel good about it.

Just because one spouse designs a budget doesn’t mean that the other spouse will follow it.  In America both the husband and wife spend money.  For that reason, it is important for both to design and to agree upon the budget.  That way they are both likely to follow it.

Some months you may have to draw money from savings. But other months try to put money back into savings to make up for that.

When you can, buy things on sale, and use coupons for purchases.  However, not all coupons are a good deal.  Sometimes you end up buying something that you don’t need or want. 

You may be able to decrease spending on medications using a prescription discount card.  If your health insurance does not pay for medicine, consider looking into getting a free discount card such as Good Rx.

Some people use what is called the 50-30-20 rule. That rule of thumb says to take the first half of income for necessities.  Then use 30% for savings or debt repayment. The last 20% goes to everything else you might want.

If you are going to make a big purchase, sleep on it. Do not ever buy something major on the same day that you decide you want it. The bigger the purchase the longer the length of time that you need to think about it. If you want something really small such as a candy bar you may want to think it over for a minute. But if you want something bigger such as a toaster, you might want to wait until the next day or even two or three days, giving yourself time to think it over and do some research. You may decide that you have something else which works just as well and that you don't really need the toaster. If you want something even bigger such as a small piece of furniture you might want to wait a week or so before buying it.  A car would require perhaps a month of research and thinking, and a house could require several months of research, looking and thinking.

Don't spend money that you don't have.  Another way of saying this is to not go into debt unless you absolutely have to. What would be an example of absolutely having to take out a loan? Usually, people need a loan to buy a car or a house.  Or if you already own a car and it breaks down, you may not have a choice but to repair it and use a credit card.

Psychologically do not think of a budget as something that denies you having what you want.  Instead think of it as something that allows you certain things such as food, housing, and clothing.  Most of all it allows you to have savings and retirement money for the future.  Take pleasure in the things it allows you to buy.  We all like to spend money.  Enjoy spending the money in the budget.

In conclusion, the best advice is make it, budget it, and save it. 

 

 

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A YouTube short:

5 Ways to set fire to your money

1.      Light it with a match

2.      Play the lottery or gamble it at Bingo.

3.      Don’t keep a budget.  Have no idea where your money is going.

4.      Spend it on fun things before you pay for the important things.

5.      Spend it on flashy things to impress your friends rather than on what your family needs