Setting a budget is not just a business thing—Part 1

Setting a personal budget for a household is a great way to ensure practical spending within and avoid added financial stress in the New Year.

Setting a personal household budget is a great way to ensure practical spending within your means and avoid added financial stress in the New Year.

As an Extension Educator with Michigan State University Extension, with over 15 years of Business Management and Leadership experience, I have conducted this process both professionally and personally many times, and have also had the opportunity to counsel others, always finding this process to be extremely valuable.

A good standard practice for business is to set their annual budget as a plan for operating successfully in order to ensure profitability. This practice can easily translate to our lives outside of the office and into the home.

The end of the year is a great time to reflect on the previous year’s spending and to set a budget for the upcoming year. It’s easy to look back on the previous year to establish baseline figures for fixed and variable monthly expenses, and fairly simple to estimate income and expenses for the next 12 months.

Though difficult to practice, these few pointers can ease the strain of establishing a budget

  1. Establish a net income.
    1. This is the actual “Take Home” pay and other sources of income after taxes
      1. It is important to note that this is a starting point because ultimately it is the maximum amount for which is available (cash on hand) to use for spending without generating a deficit.
  2. Establish all expenses
    1. Debt—Credit Cards, Mortgage, Car Loans, Student Loans Etc.
    2. Known—Such as Utilities, Fuel, Food, Fun
    3. Variable—Such as miscellaneous (unknown) expenses that pop up throughout the year. Gifts and donations are good examples of variable expenses
    4. Savings—Savings, Retirement, Investments

Once these items are established and put into a spreadsheet, it is very easy, and sometimes frustrating, to see where there are areas that need attention.

In part two of this series titled “Don’t fear debt—Manage it!”, we will provide some examples and dig a little deeper into the debt and expenses topic.

There are several sources to assist with budgets, both online and traditional. Most of the math involved is simple addition and subtraction and most spreadsheets can be set up to do the work for you. For additional assistance, you can always seek assistance from your accountant, financial advisor or via templates downloaded from the internet. MSU Extension also has MI Money Health where you can find personal finance resources in Michigan!

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