Basic Financial Planning for Newlyweds




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Putting Together Your Household Budget


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Ask the average person what's easier - putting together a household budget, or sticking to it - and the response you'll get will most likely be a shrug of the shoulders.  Putting together a household budget takes time, and sticking to your budget takes discipline.  Doing both steps, however, really helps to stretch out your earnings as far as possible.

Step One: Prepare Your Budget

Most people earn pretty much the same amount of money each month, and excluding vacations and big ticket items, spend the same amount of money each month as well.  If you fit that description, putting together your household budget shouldn't be too difficult at all. 

To prepare your budget, first take a look at your inflows and outflows over the previous three to six months.  Next, from the information you gathered, project out your inflows and outflows for a typical month.  If your budgeted outflows exceed your inflows, determine which monthly expenditures you can cut.  Otherwise, tweak the expenses that need tweaking, then calculate how much money you'll have left over each month to put towards your savings or use to pay down your debts.

Keeping track of your personal finances using a program such as Quicken or Microsoft Money makes this step much easier.

Step Two: The Monthly Review

Once your budget is in place, you should review, on a monthly basis, whether you were successful in sticking to the budget. If you weren't able to meet your goals, what happened? Will you be able to meet your goals next month, or is your budget completely unrealistic? 

As part of your monthly review, you might see that some components of your budget need to be updated.  For example, your rent might have increased because you moved to a more expensive apartment. Make sure to update your budget to reflect the most accurate information at all times.

"Backing Into Your Budget"

Not everyone has the time or desire to review their actual inflows and outflows each month.  For these people, there is a shortcut available known as "backing into the budget".

Remember, as part of step one, you'll calculate how much extra money you'll have each month after paying all of your bills.  To back into you budget, simply sign up with a bank or mutual fund company to have the projected monthly surplus automatically transferred out of your checking account into a savings account.  If, at the end of the month, you don't have enough money in your checking account to pay all of your bills, simply transfer some money back from your savings account to cover the shortfall.  If you need to dip into your savings, you'll know that you didn't meet your budget for that month.

The Two Step

The Two Step is a type of dance as well as what's involved with budgeting.  Just as you need to practice a dance step over and over again before it becomes second nature, you need to work at your budgeting for many months before it becomes part of your monthly financial routine.



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