The Young Families Guide for Finances and Budgeting

Budgeting is a basic skill that everybody should have, but many young people and young families are not as good at it as they should be. Doing it well takes practice and, logically, younger people don’t have as much experience at it. Here are some tips on how to budget:
 

Calculate Income

Write down every source of income you have and how much you get from each source, and for many, this is as simple as looking at your pay stubs from work, but for freelancers, this requires meticulous record keeping. If you are a full-time employee, you will probably get paid every two weeks, this usually equates to two paychecks a month, but you will get three paychecks during two months of every year. Take taxes into account, other forms of income, and try to get a solid feel for how much money is exactly coming in.
 

Allocate Your Income

Make a list of all of your expenses, dividing them into needs and wants, and allocate funds to your needs first. These generally include your mortgage/rent, food, utilities, transportation, clothing, insurance, Internet service, phone service, health care and savings. After allocating money for your needs, you can allocate funds for some of your wants, these might include cable television, eating out and other amusements. Most importantly, your expenses must be less than your income, but if it’s not, you need to reduce your expenses or increase your income. There are total percentages that certain bills shouldn’t exceed, such as mortgage/rent shouldn’t exceed 25% of your monthly income, so small adjustments like these can help you have more money in the end.
 

Establish an Emergency Fund

The best way to do this is to open a savings account and deposit money into it on a regular basis. Many employers allow you to automatically deposit a portion of your paycheck into such an account instead of your checking account, so take advantage of this option, especially if you lack self-discipline. Having such a fund will help you avoid taking on debt should you incur any unexpected expenses. One method that’s very doable, especially for those of us who have a harder time actually making the deposits into our savings accounts, say this week, you put $1 into savings, then next week, put $2, the next $4, multiplying by the previous week, and so on. This will accumulate quickly, and it doesn’t feel as if you’re pouring money in.
 

Pay Down Debt

If you have no debt, great, keep it that way if possible. If you make charges to your credit cards, pay them off every month, if you have outstanding balances, make a plan to pay them off. Paying the minimums every month does not constitute such a plan, and if you have trouble finding the money to do this, consider seeking help from a non-profit credit counseling agency. Just don’t let bills go to collection, keep in contact with the company in question that’s billing you, most companies are very flexible, and will work with you.

To budget effectively, you need to know where your money is going, and keeping track of this can seem daunting, but it is vital. Luckily, many software programs exist to help you do this, and free online budgeting tools can also help. If you budget effectively, you will be more likely to establish long-term financial security.

 

About Author: Melisa Cammack has been married for 13 years, mother of three children, and freelance writing for almost a decade. She is currently writing on behalf of The Law Office of Scott Blotter, a Utah bankruptcy attorney.