Budgeting For Debt Management: The Household Budget

Budgeting is the process of recording, tracking and regulating the amount of money spent on a daily, weekly, and monthly basis.  Budgeting comes in many forms from personal budgeting to capital budgeting.  Regardless of what they focus on, budgets are all about measuring the amount of money coming versus the amount of money going out.  We have all used some form of personal budgeting for example.  Imagine a twenty dollar bill in your wallet, the simplest form of personal budgeting would be to determine how, when and where that twenty dollars would be spent.  Of course there are more complex forms of personal budgeting that warrant enough detail to write hundreds of books. This article is mainly concerned with the household budget.   A household budget looks at the expenses of a household across the month and indicates where money enters and exits the household.  For example, a typical household budget would track utility expenses on a month to month basis. 

Planning a household budget need not be hard. In fact, budgeting in general is usually a simple process.  It simply a matter of recording how much money you take in on a monthly basis and then what you spend it on.  Let make up a hypothetical household budget.  Lets say family 'x' brings in $1000 every month.  They have to spend $100 on food, $100 on utilities, $100 on clothes and $100 leisure.  Their house hold budget would look like this:

Family 'x' Household Budget:

Total Income:	$1000
Total Expenses:	$100 Food
	$100 Utilities
	$100 Clothes
	$100 Leisure
Total:	$400
Total Income - Expenses:	$1000 - $400 = $600

Of course this is an extremely simplified version of a household budget.  In reality there are many more expenses that occur on a day to day basis which must be factored into budgeting.  The most effective budgeting practices account for every penny that is spent. 

Despite the simplicity of the above household budget, lets imagine that the family suffered a lay off and had some unforeseen medical expenses.  Thankfully the family is ok, but their household budget is in need of a rework.  All of a sudden they have gone from having a $600 a month budgeting surplus to have deficit, or short fall of $25.  That is, when all is said and done, family 'x' owes $25 more then it can pay at the end of each month. 

They have started to rely on credit to pay their way through so far, but are running out of options and time.  This is where budgeting really shines.  Family 'x' looks a their household budget with a critical eye and decide that there are some changes that they can make in order to help with their debt management.  Looking at their household budget, they decide that while food and utilities are essential and cannot be reduced, both their leisure and clothing allotments are rather high.  They were set at a time when the family income supported such spending and thus they fit well into the family budgeting.  However, since times of changed and debt management is crucial in protecting the families long term security, family 'x' decide to make 50% cuts to their clothing and leisure spending.  This frees up an additional $100 that not only takes care of the household budget deficit or short fall, it also leaves a little left over for a rainy day or further debt management. 

The fascinating things about budgeting, is that it really shows you exactly where your money is going.  The more detail you put into budgeting the more accurate it will be.  Similarly, more diligent you are with recording your household budgeting expenses the more accurate your budget will be. 

This is critical in positive debt management.  The more you know about how you spend your money, the more places you will be able to free up real dollars that can be spent toward your debt management.  Developing a strong household budget is on the most simple and satisfying ways to actively participate in debt management.  Most people are really surprised to see how much then can save or recoup just by looking at their budgeting habits.  For example, lets say you spend a $1.25 every day on a coffee, five days a week.  This adds up to about $25.00 a month.  This translates into $300 a year. That money can take a big chunk out your debt management needs without even blinking.  There are hundreds of budgeting examples like this. Most people, on an effective household budget will be able to recoup several thousands of dollars.  This is not to say that that morning cup of coffee is not really needed.  However, rather then buy it at a coffee shop, why not make it yourself and put it in a thermos?  Its not perfect, it may not even be slightly glamorous.  However, you will be effectively budgeting your money, fulfilling your debt management requirements and living within an effective household budget. 

If you are interested in learning more about developing a household budget and effective budgeting strategies, check out The Credit Renovator.  It is a step by step guide to budgeting, credit repair and debt management. 

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