Financial Bullett Points: Creating a Household Budget

By Brendan Bullett
iBerkshires Columnist
05:02PM / Wednesday, May 06, 2009

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Brendan Bullett

As a financial adviser, I work each day with my clients to help them organize and allocate their financial resources. In this column, I hope to use my available resources to offer you some possible solutions to assist you in meeting your financial goals.

Given the economic events of the last 18 months, one of the most important ways to make sure that you and your family are on the right financial track is to establish and maintain a realistic household budget.

It is very common for people to ask the question at the end of each month, "Where did my money go?" The best way to answer that is to create a household budget. A budget is essentially a financial plan that looks at money coming in and going out during a certain time period. I feel that the easiest and most manageable time period to use is a monthly budget.

However, before you start to create your budget, the first thing that you want to do is make a list of your financial goals. You may want to break this list into two categories, short-term goals and long-term goals. Short-term goals may include buying a new car, taking a vacation, or doing upgrades to your home. Long-term goals may include saving for your retirement or saving for your child's college education. Once you have determined your goals, you can start to create your budget to help you meet them.

The first step in creating a budget is determining your income and expenses. To track your expenses you should create two categories, fixed and discretionary. The fixed category should include anything that occurs on a regular basis such as your mortgage or rent and utility bills. The discretionary category may be a little harder to come up with. You may have to look back at your bank records to see where you spend money on such things as food and entertainment. Please keep in mind that any money you save should be included under your discretionary expenses. Determining your income should be somewhat easier as most people have a set amount of money they earn each month. This can obviously fluctuate if you work overtime one month or earn an unexpected bonus.

Once you have figured out all of your income and expenses, compare the two totals. To meet your goals and have a healthy financial future, you should spend less than you make. If you are currently doing this then you are on the right track and just need to decide on the best way to spend your extra income. If you are spending more than you earn, you will want to evaluate your expenses, especially the discretionary category. This is not a cause for great concern. Instead think of it as the starting point on your new financial map.

It is important to monitor your budget on a regular basis and make updates when major changes occur. However, please don't feel that every penny of every month needs to be accounted for. Your budget needs to be flexible or else it will likely not work. As we all know, unexpected expenses are a part of life!

My last suggestion is to make sure everyone in your family is on the same page regarding your financial goals. Everyone needs to do his or her part in order for the budget to be maintainable. Regular family meetings can help make sure your budget is a success.

Remember, in rough economic times one of the most prudent courses of action is to head back to the basics. The foundation to a healthy financial future is to create a household budget and do your best to stick with it.

Brendan Bullett is a registered representative of and offers securities through True North Financial Services Inc., member FINRA, SIPC, and a financial adviser with True North Financial Services Inc., and a registered investment adviser. For questions or comments, he can be reached at 413-664-4025 or bbullett@truenorthfs.com.

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