Money

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 budgets anyway? Budget talk is utter boredom, a waste of time, an optimistic but unrealistic advice about managing money that does not stick too long in the psyche. Budgets are as fleeting as the dreams we used to have about meeting prince charming who will give us a credit card with no spending limit and a house on the hill with trees that grow money, not leaves.

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

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

Budget may be boredom ad infinitum, but bankruptcy is a certified, confirmed, ISO-endorsed bugbear. It will be the bane of your existence. Forever.

Creating a Household Budget – Takes Tons of Discipline

Of course it isn’t enough to draw up a household budget, set it on parchment paper and then have it framed for all family members to oggle at. 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 will power to not overspend and force yourself to walk away from a gourmet cup of coffee. Those cups of signature coffee every morning on the way to work can add up considerably. Mull over this:

1 medium golden-chocolatey mocha = $ 2.50
-plus-
1 brioche = $ 1.25
Total = $ 3.75
$3.75 multiplied by 5 (5 days a week) = $18.75
$18.75 multiplied by 4 (monthly) = $75.00
$75.00 multiplied by 12 (yearly) = $900.00

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 off $800.00 from your expenses by sitting down in your tiny breakfast nook at home and brewing your own coffee. “Oh, but I can’t make it like Starbucks does.”

Kiddo, get used to it. There are supermarket brands now that offer combination chocolate mocha flavor. Besides, slash off your coffee expense and you’ll be slashing off inches from your waist line.

Seriously.

$800.00 a year for your coffee habit is way too much. You could buy 10 shares of a coffee company and watch it grow over the long term. Or you can set aside the amount for your gas allowance, do double-up payments on your mortgage, pay it towards your next life insurance premium, deposit it into your ING savings account, put it on reserve for appliance repairs, or 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 – Ingredients to Throw In

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, shoewear, video rentals,weekend outings)

Notice that we put entertainment as the last item. The reason for this is that should the unexpected arise, we would have to forego our entertainment expense for that month. Why eat out when we can eat in? Why won’t the blue dress do for the time being? Why can’t we borrow a video film 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 the year. Missing one or two is not going to kill us.

Notice too that we did not allocate any amount for credit card debt. We’re working on the assumption that your debts are negligible and that paying finance charges is not eating up the lion’s share of your take home pay. Credit card debt is as serious as cancer. If you don’t believe us, go to bankrutpcy court and tally up how much credit card debt figures in the liabilities column of individuals. We won’t belabor this issue. Almost everyday, the experts condemn credit card debt and what one must do to eliminate it.

If you don’t know much about the household finances because your spouse takes care of paying the bills, this is a situation that you have to change, much as 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 involved, there’s a higher degree of commitment and focus towards the family budget. One can veto the other. Do not give up control over your finances. A financial education in many cases is a life saver.

If you read the book Rich Dad, Poor Dad by Richard 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 realize that money IS an asset that matters, despite what they say that it is the root of all evil and that it does not 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. The only time it becomes evil is when we allow it to control us.

Many would call Kiyosaki’s book minimalist, echoing concepts already verbalized many times. We read it only last year, we wished we read it at age 5!

Creating a budget and sticking to it demonstrates a 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 man’s vocabulary.

Creating a Household Budget – 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 – according to the author – a simple observation. It jogged our brain 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 has this got to do with creating a household budget, you ask.

Well, we’ll formulate our answer in just 37 words: when you inject a respect for money in people at a young age, they will work on saving money consistently so they can – at some point in their life – 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 upona time – salivate no end.

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

As father used to tell us: your self-confidence will not come from your looks or your talents, it will come from the knowledge that you have money in the bank.

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