How to Manage Your Personal Finances - The Home Budget

In these days of economic hardship, more and more people are being forced to look at their expenses very carefully in order to make ends meet. However, it should not require a recession or major job cut scares to put this basic discipline in place and in fact, we should teach ourselves and our children to practice this basic discipline all the time. So, what is required to maintain a home budget? In essence, it requires the keeping of records of evey cent that you actually spend in any one month. There are many types of payments that we all incur in a month but these can generally be categorized in three categories as follows:

- Fixed cost bills
- Variable cost bills
- Dicressionary spending

The home budget should be drawn up to reflect these "expense centers" as separate blocks of costs each with a sub total which then highlights the size of the commitment. This way, one is forced to balance the budget by cutting back on variable and discretionary spend and to plan accordingly. The next step is to identify the different types of payments. Here we look at our actual monthly spend and then decide where the cost fits. Examples of the different types of payments are as follows:

Fixed Bills: Mortgage payments, Motor vehicle finance payments, Insurance policy payments, Property rates and taxes payments, Monthly savings (always try to save a percentage of income), Medical aid membership payments, School and university fees, domestic aid payments, daily parking payments at work etc. Note: Each household will be unique in what fixed bills that incur but it is important to identify all the costs which are non-variable monthly commitments

Variable Bills: Telephone bills, House hold costs, Clothing costs, Utilities bills, etc. Again each household will be different but this category lists all the costs where a person can influence the commitment by doing things differently or by cutting back on the spend. It is very important in this category to set a monthly budget per item and to adhere to the targeted spend.

Discretionary Spending: Cash withdrawals spent on things other than fixed and variable bills, entertainment spending, holiday costs, Annual subscriptions to publications etc. Here one must decide whether you can afford the spend or not.

Appart from the above spending, one must make monthly provisions ie put some money away, preferably in a separate bank account, for things like motor vehicle maintenance and servicing, annual club subscriptions, annual license renewals, annual levies on holiday properties, annual birthdays, etc. Again, each household will have it's own commitments here but it is important to identify these costs in order to provide for them.

In conlusion, once one starts keeping track of actual monthly expenses, it is surprising to see how much more aware one becomes of opportunities to reduce this spend. Some households find out that they have been spending way in excess of what they can afford and their reliance on credit is then highlighted. We must remember that the budget must balance otherwise we have to cut and shape it until it does balance.

No home should run it's affairs without a monthly budget.