Your Family Budget

If you don't have a system for managing you money, you can give yourself an immediate, unconditional, guaranteed raise just by starting such a system. Money that isn't managed will disappear, and you will have nothing to show for all of your hard work.

For some people, even the thought of a budget is torture. They thinks a budget must be a rigid device that will keep them from enjoying their money. Just the opposite is true.

A budget is a system of tracking your expenses so that you can choose to spend your money on the things  that are important to you - and not waste it on things you don't really want.

When you set up your budget, make it a family affair. Couples need to track expenses together and come to a mutual decision about the goals they set and the areas they trim. A budget is doomed to failure if it includes unresolve conflicts about where the money should go.

If children are a part of your family, include them in your budget discussions. Bringing the entire family into the process is a good way to teach children about financial responsibility and meeting obligations. Children are more likely to understand your purchase decisions if they are a part of a family effort to achieve a special goal. But don't expect you children to be thrilled about passing up a new bike this year for a larger kitchen next year.

The Road to Home Ownership

Tracking Spending Habits

You can't begin to trim your spending until you track your spending habits. You have to know what your current spending looks like before you can make sound money management decisions. Some people have file folders of neatly organized monthly receipts and check receipts; others have shoe boxes stashed under the bed, brimming with receipts sporadically collected over the years. Still others don't have a clue where their money goes each month. You know who you are!

Whatever your past record - keeping habits, you will need to receipts for tax records as a homeowner. You don't want to take on the financial responsibility of a house without a clear accounting of your current and projected monthly spending.

Use the worksheets, "Tracking Spending Habits - Sheets 1 & 2," to help you  to understand you personal spending habits. The guidelines that follow will help you with this process.

Steps for Tracking

The guidelines below may be helpful to you in tracking your spending habits.

1. Set up file folders for sorting and sorting your spending receipts.
2. Use your check stub register and your receipts to write down what you spend in each category.
3. Regarding debt, you will need to calculate your total indebtedness to establish you qualifying ratio. It also is useful for budgeting to list each item from your credit and charge card bills in the appropriate category.

Remember, the lender wants to know how much debt you are obligated to pay. You also need to know what purchases created the debt. When compiling you totals, be sure not to count the credit card amounts twice. 

     4.   Mark each month's spending data as reasonably complete or
       incomplete. You want to know if you have enough data in any given
       month to predict your monthly spending patters.

    5.   Carry a notebook (remember, if you have a family, this is a family
           activity), and write down each cash expenditure for the next two
       weeks. Add these figures to this month's spending in the appropriate
       category.

Trimming Spending Habits

If you're like most people, an analysis of your spending habits will reveal areas that you can trim with relative ease. First, decide whether an expense is fixed or fixable, A fixed expense is one that remains the same each month - you can't change it. For example, your car payment is probably a fixed expense. You know exactly what it will be until you have paid for the car. On the other hand, expenses like food, entertainment, vacations, and so forth are flexible, or discretionary expenses because they are subject to your continuous review and approval.

Use the worksheet, "Trimming Spending Habits - Sheets 1 & 2," to set up a permanent system for managing your money. You can use the system to save for down payment and closing costs if that is your goal, but you can also use t to save for any other purchasing goal before or after you buy a home. 

Steps for Trimming

These tips can help you start to trim your spending:

1. Transfer "Average Monthly Spending Totals" from "Tracking Spending Habits" to the first column of "Trimming Spending Habits." (Round off to the nearest dollar; you don't need calculations to the penny.)
2. Mark discretionary categories with a halter. Concentrate your efforts on these expenses, because you can't do much to control fixed expenses.
3. Look at what you spend in each category and decide if you can, and want to, trim it. If you have been averaging $56 a month on long distance calls, try trimming to $36 a month by calling only during discount calling times and watching the clock on your long distance chats.
4. Each month, transfer your spending information to the appropriate column, and use a pencil to indicate whether you have gone under or over your estimates. Continue to mark this column Year-to-date (YTD) by simply erasing and correcting the YTD plus or minus figure. 

Make regular adjustments to stay within your budget. If you can transfer your "plus" money to special savings account and go back to a zero balance in YTD plus or minus column. Try it. You'll be amazed at the results!