What should a budget look like? Part 1
Learn how to come up with a budget you can stick to.
Nobody likes the big, bad B word. We’re talking about a BUDGET. But budgeting is an absolute necessity in life whether you make minimum wage, are on a fixed income or are wealthy. Knowing how much money you have and where it is going is key to understanding personal finances, ways to eliminate debt and even build wealth.
People frown upon the word budget for a myriad of reasons. Most people associate the word with a negative connotation. To some, it means not being able to have what you want. This notion needs to be dispelled as budgets are a powerful tool for understanding how much money you need to live on and give you a picture of what you could be doing with your money.
First, things first, budgets should/may include the following:
- Housing costs-Mortgage(s)/rent, property taxes, renter’s/homeowner’s insurance, mortgage insurance and association dues
- Utilities-Oil/gas, electricity, water
- Secondary Utilities – Phone, cell phone, internet, cable, alarm service and any lawn/snow removal
- Secured Debts – Auto/RV payments, student loans, and tax repayments
- Flexible household expenses – Groceries, restaurants, entertainment, vehicle gasoline, car Insurance and maintenance, health and dental insurance, copays and prescriptions, veterinary care, life insurance, child care and/or support, charity donations, health care club dues, dry cleaning or laundromat services, unsecured debt such as credit cards and personal loan payments should also be included.
For some people, estimating flexible expenses can be difficult, especially with the fluctuating cost of living. Food, gasoline and clothing are all examples of expenses that vary based on overall world market conditions and when they are needed. This article is the first part of a three-part series will break down everything from how much you should be spending in each area to resources that will lead you to establishing a budget.
Michigan State University Extension offers Money Management seminars to help you understand budgeting, credit, and how to manage your finances. Also, be sure to visit MI Money Health for more information on how to budget.