1. Every dollar coming in must be assigned a place – either to be spent, saved, or given away.
2. Each spouse has an equal vote. This is a meeting of equals.
3. While one spouse may prepare the budget, both must agree on every item in it.
4. Once the budget is agreed to, both spouses must follow it. If for some reason the budget must be changed (for example, if an unexpected expense occurs), both spouses must adjust the budget and agree from where the money is to come.
A new budget should be prepared each month, although a yearly budget is also helpful in order to determine how much money must be appropriated throughout the year for goals such as retirement savings, repair funds, and college savings accounts. Adding up the yearly totals also highlights expenses that may be excessive when added up over a 12 month period (for example, a $5 latte each workday adds up to $1300 over a year). The steps for preparing the budget are as follows:
1. List all account balances
2. List income from all sources. This includes wages, interest from accounts, and other sources.
3. Begin a list of expenses, starting from those that must be paid (food, clothing, shelter, taxes, insurance, loans).
4. Assign a certain amount of money each spouse will receive as free money to spend as they wish without questions (for example, $50-$100 per month each).
5. Add expenses for month-specific activities (vacations, special dinners out, school events, gifts, etc….)
6. Determine how much money you would like to give and to whom for the month (if you’re a Christian who tithes, you would obviously take 10% automatically each month before any other budgetary steps).
7. Total these amounts and determine how much is remaining.
If it is a positive balance:
Look at your yearly goals and determine which to fund. For example, money can be allocated to items such as home and car repair funds, college funds, IRA contributions, Health Savings Accounts, home and car insurance funds, Christmas savings accounts, and other such flexible investments and expenses. Keep a tally of savings for each of these goals against your yearly target to ensure progress as the year progresses. If all items are fully funded for the year, place the money into savings and begin to make extra payments on outstanding loans and invest additional monies as those savings build up. If there is always a great deal of money left over and you don’t have any remaining loans, consider adding luxuries or additional giving to your budget.
If expenses outweight income:
Determine if expenses can be trimmed for the month or delayed into other months. If that is not an option, determine how money will be pulled from savings. If this occurs most months, consider trimming back on your lifestyle as you are spending more than you are making.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.