Successful money management begins and ends in one place: the monthly household budget. The ability to accurately track expenses while managing income and saving for the future are essential skills that the financially savvy depend upon; these categories live in the budget. While there are basics that every individual needs, what's included in those categories may differ among consumers. The key to success? Modifying your budget until you get your own best personal mix.
Before you can decide what goes out, know what's coming in. Income is this category, and it includes your monthly take home pay, as well as items such as child support or investment income. Be sure to use your post-tax earnings, instead of pre-tax. Although you may be able to adjust your withholding through your employer -- a wise move if you get a big refund every year -- it has already done the hard work for you by making tax and other contributions on your behalf. If you receive income on a quarterly basis instead of monthly -- for example, quarterly dividend payments -- don't forget to add this in every third month. Statements are a helpful reminder, so keep them safe, and preferably in one place.
Secured and Unsecured Loans
A secured loan is an installment payment that you make for a loan that's tied to an asset, like a house or a car. If your house payment includes funds that are deposited in escrow -- meaning, if you are making monthly payments for property taxes and insurance -- include those as well, since your lender makes those payments on your behalf. If you don't make payments for property taxes and insurance through escrow, you'll categorize these elsewhere. Other types of loans to include are student loans and credit card loans. Ideally, you should pay your credit cards in full every month, but if you don't, count the payment that you're currently making.
Insurance and Investments
If you own a car, then chances are you make payments on an auto insurance policy. You may also make regular payments on a life insurance policy, or even a health insurance policy if your employer doesn't sponsor a plan. You'll also need to include your homeowner's insurance policy and property taxes, if you don't contribute to an escrow account. With these costs, include post-tax savings and investments. Contributions toward college funds, non-employer-sponsored investment accounts and emergency funds are appropriate here. Keep in mind that these expenses, while often necessary, may be adjustable; having them together in one area emphasizes their importance but also reminds you that alternatives are available.
Variable and Discretionary Expenditures
Don't forget to include the costs of daily living. Groceries, utilities, gasoline, and other necessities must be included. What's left over is called discretionary spending. Saving for a vacation? Include it with your discretionary expenditures. Want a new handbag or golf clubs? Discretionary. Personal care, recreation and charitable contributions are also discretionary spending. You may opt to include post-tax investment contributions here, as well; try it both ways and see which works best.
Keep in mind that these are the basics, and budgeting is often values-oriented. For example, charitable contributions may be an "essential" item for some, while others may find the challenge of meeting everyday expenses enough to handle. Don't be afraid to tinker with it; budgets are living, breathing documents, and can be altered to suit your current needs.
Lisa Bigelow is an independent writer with prior professional experience in the finance and fitness industries. She also writes a well-regarded political commentary column published in Fairfield, New Haven and Westchester counties in the New York City metro area.