How to Set Up a Livable Budget for Your Family
Most reasonable family heads understand that it is important for their family to live within their financial means.
But what happens when a family’s “means” change? One or two of the financial providers in the home may lose their job, someone might get sick, or an unexpected expense might occur. When these things happen, how can a family create a budget that they can happily live within?
The Importance of Planning
The old axiom, “If you fail to plan, you plan to fail” definitely applies when talking about the family budget. Family heads must allocate the financial resources they have for the month and for the year. Creating a budget or a plan does not need to take a lot of time, but the end results that it produces are amazing. What is involved in creating a livable budget?
Know How Much You Make
Your budget is completely dependent on your spendable income. This is the amount of money that you have left over after you make donations and after you pay taxes. To get this number, look at all of the expected sources of income for the year. This includes:
- Your Salary, Dividends or Drawings
- Expected Bonuses
- Income from Investments
- Social Security
Then calculate the amount you will owe the government in taxes. Looking at your previous tax returns can help you in this regard. Subtract the first number from the second number, and you have your net spendable income.
Prioritising Your Expenses
As you go through making your budget, it is important that you prioritise your expenses. You should start with the biggest expense you have and work your way down.
In most homes, housing is the biggest expense. It is recommended that your mortgage or yearly rent payment not exceed 30% of your net spendable income. So if after taxes you have £45,500 in income, your mortgage or rent should not exceed £13,600. This number should include insurance, utilities, and any maintenance you perform.
The next expense is your transport. It is recommended that you spend no more than 11% (£5,005 based on income of £45,500) of your income on transport every year. This may mean that you may need to purchase a more conservative car or use public transport to keep your budget in check.
Following transport you will need to budget for food. It is recommended that only 11% (£5,005 annually or £96.25 monthly based on income of £45,500) of your budget be spent on food. This would include buying food at the grocery store and eating out. By planning in advance, you can make delicious meals and still does not break the bank.
Preparing for Miscellaneous Expenses
Miscellaneous expenses is a large category that includes many of the large ticket items on your budget. Some of these could be necessities and others might just be things that you want. For example, it is estimated that people spend approximately £750 annually on their pets and £750 annually on their mobile phone.
Included in miscellaneous expenses is saving, credit card payments, holidays, clothing, and other necessities.
If your family is carrying consumer debt, a special category should be set aside for this. Some experts recommend using a 20% plan. This is where 20% of your monthly income goes to debt. You can get good advice on minimising your debt and improving your credit by talking with the best credit repair experts on the subject.
Preparing a livable budget for your family is not always easy. However, creating a budget and sticking to it produces financial benefits that can lead to a drastically improved quality of life.
By Kevin Faber
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