Income > Outgo

It may seem overly simplistic, but the true essence of a home budget consists of controlling your spending such that it never exceeds the amount of money you have coming in. Take a counter-lesson from the federal government. They, as well as some state and local governments, have been spending more than they take in for many, many years. And just look at the mess it has gotten us into. You don’t want to find yourself in this same mire. You might be saying, “Too late, I’m already deep in debt.” Well, it’s not too late. Most people start out with some level of debt. If you are just out of college and working at your first “real” job, you may have college loans to repay. Also, you probably needed a vehicle to get to and from work and other important destinations such as the grocery store, the doctor, and the gym. Unless you found a good car for a great price, you may owe money on it. And at some point you may have decided to invest in a home, especially with the deflated prices due to the recession. But you may also have found yourself getting caught up in the I-want-it-now craze and went wild with your credit cards. Whatever debts you have incurred, it’s probably time to make a plan to reduce that debt and get your spending on a sustainable path.

One very simple way of handling a budget is to just have a checking account and make sure you don’t spend more than you have in it. Well, that’s a start, but it doesn’t really help you to understand where your money is going each month and to plan for those expenditures that only come around every few months or every year. What is really needed is a way to categorize your expenditures, decide how much money is needed for each category, and then budget accordingly. When you do this, you may see where some expenditures are just not wise given your current income. For instance, you may realize that those car payments are too high or that the cost of gas, insurance, and license fees were more than you anticipated. Under such circumstances, you may decide that you will take on a part time job to earn the additional money needed, or you may decide to sell the car and buy a much cheaper one that is still capable of getting you from point A to point B.

In our next blog post we will present to you some expense categories that we personally use in our home budget and suggest others that may be appropriate for your situation.