Creating a Household Budget

Fact #1: Creating a household budget and sticking to it is the secret to a healthy wallet.
Fact #2: Creating a household budget and sticking to it is the secret to a healthy wallet.
Fact #3: Creating a…

“Okay, okay, cut it out. I hear what you’re saying,” your tone is menacing. We understand why.

Who wants to talk about budgets anyway? Budget talk is utter boredom—a waste of time, an optimistic but unrealistic piece of advice about managing money that doesn’t stick long in the psyche. Budgets are as fleeting as the dreams we once had about meeting Prince Charming, who would give us a credit card with no spending limit and a house on the hill with trees that grow money instead of leaves.

But if we’re taught that money doesn’t grow on trees, why should we bother with budgeting?

Because if you look around, listen hard, and watch Oprah regularly, you’ll see that this equation reigns supreme: no budget = bankruptcy.

Budgeting may seem like a bore, but bankruptcy is a certified, confirmed, ISO-endorsed bugbear. It will be the bane of your existence. Forever.

Creating a Household Budget – It Takes Tons of Discipline

Of course, it’s not enough to simply draw up a household budget, set it on parchment paper, and frame it for all family members to ogle. It must also be followed religiously—to the letter, and to the last cent. Any little deviation will lead to total non-compliance in the long term. Healthy financial spending is a discipline worthy of army training. You need plenty of willpower to not overspend and force yourself to walk away from that gourmet cup of coffee. Those signature cups every morning on the way to work can add up considerably. Mull over this:

Let’s reduce that $900.00, because there will be days when you won’t be going to work (like during the holidays)—say, $800.00.

$800.00 a year is a lot for coffee alone. You could slash that $800.00 from your expenses by sitting down at home in your tiny breakfast nook and brewing your own coffee. “Oh, but I can’t make it like Starbucks does.”

Kiddo, get used to it. Supermarket brands now offer chocolate mocha flavors that could satisfy your craving. Besides, slash your coffee expense, and you’ll also be slashing inches from your waistline. Seriously.

$800.00 a year on coffee is way too much. You could buy 10 shares in a coffee company and watch it grow over time. Or you could set aside that amount for gas, do double-up payments on your mortgage, put it toward your next life insurance premium, deposit it into your ING savings account, reserve it for appliance repairs, or even sponsor a child in a third-world country. Helping a child won’t frazzle your nerves the way coffee does, and it’ll help you sleep better at night.

Creating a Household Budget – Key Ingredients

The first ingredient is discipline. The second is discipline. We hope you’re getting the message.

These are the ingredients we would throw in:

• Mortgage payments (or rent payments)
• Groceries
• Utilities (heat, electricity, cooking gas)
• Children’s tuition
• Insurance
• Gas and car maintenance
• Communication costs (telephone, cell phones, internet, cable TV)
• Subscriptions
• Health care
• Entertainment (eating out, clothing, shoes, video rentals, weekend outings)

Notice that we put entertainment as the last item. The reason for this is that if the unexpected arises, we might need to forego our entertainment expense for that month. Why eat out when we can eat in? Why not keep the blue dress for another season? Why can’t we borrow a movie from the public library instead? Why spend the weekend outdoors when we can stay home and clean out the closet? There are 52 weekends in a year. Missing one or two isn’t going to kill us.

Also, we didn’t allocate any amount for credit card debt. We’re assuming your debts are negligible, and that paying finance charges isn’t eating up a huge chunk of your take-home pay. Credit card debt is as serious as cancer. If you don’t believe us, go to bankruptcy court and tally up how much credit card debt figures in the liabilities column of individuals. We won’t belabor this point, but experts condemn credit card debt daily, and they’ve told us repeatedly what we must do to eliminate it.

If you don’t know much about household finances because your spouse takes care of paying the bills, this is a situation you need to change, even if it hurts. The chances of creating a good budget and sticking to it are higher when both spouses are involved in the family’s financial planning. When both husband and wife are actively engaged, there’s a higher degree of commitment and focus on the family budget. One can veto the other. Don’t give up control over your finances. A financial education can, in many cases, be a lifesaver.

If you read Rich Dad, Poor Dad by Robert Kiyosaki, you’ll realize how essential it is to know where your money goes—every cent of it—and how it’s spent. You’ll learn that money is an asset that matters, despite the saying that it is the root of all evil and doesn’t buy happiness.

We’ve got news for you: Money is NOT the root of all evil. It can buy a lot of relief and happiness—maybe not all, but it certainly helps. The only time money becomes evil is when we allow it to control us.

Many might call Kiyosaki’s book minimalist, echoing concepts that have been verbalized many times. We read it only last year and wished we had read it when we were five!

Creating a budget and sticking to it demonstrates profound respect for money. People who don’t believe in budgeting receive very little respect from us. If more people were taught to appreciate the greenback, the word “bankruptcy” would never be part of the human vocabulary.

Creating a Household Budget – It Puts More Money in Your Pocket

There were exactly two passages from Kiyosaki’s book that struck us:

The first one was: One father recommended, “study hard so you can find a good company to work for.” The other recommended, “study hard so you can find a good company to buy.”

The second one was a simple observation that jogged our brains, and we’ve never forgotten it:

“The rich buy assets.”

The poor only have expenses.

The middle class buys liabilities they think are assets.”

But what does this have to do with creating a household budget, you ask?

Well, we’ll formulate our answer in just 37 words: when you instill a respect for money in people at a young age, they will work on saving money consistently so they can—at some point—use it to make it work for them. Fuel dreams. Inspire activity. Reinforce focus. Achieve real gains. Build a portfolio that will make those who scoffed at budgeting once upon a time salivate with envy.

Budgeting means respect for money. When you respect money, you’ll make sure it stays in your hands—quite unlike those who line the pockets of fashion designers who become wealthier because people feel good only when they’re flaunting the latest design.

As my father used to say: “Your self-confidence will not come from your looks or talents, it will come from knowing you have money in the bank.”