About the Importance of a Personal Household Budget

Significance

Many families have difficulty meeting monthly obligations such as food and transportation expenses when faced with unforeseen medical or car repair bills. Although have a monthly household budget cannot solve your financial problems immediately, the act of analyzing your income and expenses can help you identify financial habits you need to change and expenses you may be able to reduce.

Controlling your expenses is an important aspect of developing and following a family budget. If you regularly run out of money before your next paycheck, having a written household budget may help you monitor where each dollar of your paycheck goes. Small expenses such as regular trips to a fast food restaurant or morning cups of coffee from the corner coffee shop can add up over a month's time. When developing your budget, use your past three months bank and credit card statements to develop your beginning monthly budget. As you spend money during the month, subtract each dollar from your beginning monthly balance to keep track of spending.

As of November 2010, the average interest on a credit card balance was 13.67 percent, and the average interest on a 48-month new car loan was 5.87 percent, according to the Federal Reserve Statistical Release. A monthly budget can help you avoid using credit cards by managing your monthly expenses. In addition, a budget can help you set aside an extra $20 to $25 each month to apply to your loans or credit cards. Paying more than the minimum due helps you reduce the principle balance of the loan faster.

Having three to six months of expenses saved, accumulating money in your retirement accounts and planning for your child's educational expenses is easier with a household budget. Having savings in the event of a job loss or unanticipated home repair enables you to avoid relying on credit cards or taking out new loans. When you set up your budget, request that your financial institution automatically deposit a certain amount in your savings account each month. Once you have several months of expenses in savings, budget for regular contributions to your retirement accounts and a 529 plan for your children's future college expenses.