Budget Planning Defines Essential And Non-Essential Living Expenses
Step 1 - Budget Planning
The first step in creating a household budget
is to evaulate your current financial situation.
This is called the budget planning process.
Through this planning process, it is extremely important to understand that there are times when we can't see or aren't willing to admit that we are over-extended financially and living outside of our means.
Other times, because we lack a family budget
, we're just taken by surprise on exactly how much we're spending on what we believed as an essential living expense, when in fact, it is not.
You can see why prioritizing 'essential' living expenses becomes vital
Remember to be patient with yourself throughout this process as some of the financial information may be surprising and require additional time to review and evaluate. It's better to take your time and not rush.
A few suggestions before beginning:
- If you're married or share financial responsibility, it's suggested to do this process together.
- For an honest and thorough evaluation, schedule a minimum of 2 to 3 hours of uninterrupted time for review and discussion.
This step is essential and requires your complete honesty because it sets the foundation for your budget.
Have you defined essential and non-essential living expenses?
Key word being essential
Prioritizing essential and non-essential living expenses is vital.
One of the biggest reasons we fail with our budget is because we cannot admit that we have become over-extended and are living outside of our means.
If we define our essential
living expenses first we can prioritize our other expenses accordingly.
What are your 'current' essential living expenses?
The most important part of this step is defining and prioritizing essential expenses.
Categories to consider in your discussion should include:
- school registrations and fees, property taxes, federal and/or state taxes.
- car repairs, medical costs and deductibles, appliance repair or replacement.
- Gifts and special occasions, holidays, birthdays, weddings, baby showers, and parties.
After you have discussed all of your possible expenses, now it's time to move to Step 2 - Expense Tracking to evaluate how
you're spending your money.
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