A balanced income household is a necessity in today’s society. The term balanced budget is most often associated with government, but that does not mean the United States debt is the only debt that can be cured with a balanced budget.
In the home, there are several factors that can affect a balanced income household budget. These include:
- Sources of Income
- Overall Debt
- Family Size
- Cost of Living
Sources of Income in a Balanced Budget
When calculating personal finances for a balanced home income budget, the home must first take the sources of income into consideration. Some families will have income from both parents or individuals. In the case that a home consists of only one parent or one individual, there will be fewer sources to take into consideration.
Sources of income also refer to the type of income affecting the family budget each month. If one person in the household is on SSI or retirement, these income sources are considered definite and recurring. The amount will be much easier to figure into the balanced home income budget each month because they are often fixed amounts.
Overall Debt in a Balanced Budget
The overall true debt will be the second place a person will need to visit with approaching a balanced home income budget. The word debt refers to the monies that NEED to be spent each month on bills such as car payments, loan payments and utilities. The utilities should be divided into necessary utilities and frugal utilities.
Necessary utilities include electric, water and food. Frugal utilities could be the cable bill or the Internet bill.
Family Size and the Balanced Home Income Budget
The size of the family will play a major role in a balanced home income budget. The more people in the household, the more money needed to pay the necessary utilities. The larger the family, the more strictly frugal spending will need to be watched.
Occasional expenses for family size will need to be added into the balanced budget to account for visiting families and celebrations.
Cost of Living and the Balanced Budget
Many people never consider the cost of living when establishing a balanced home income budget. Some parts of the United States cost far more to reside than others. Linking the cost of living to the balanced budget will help if family finances become very strained and the individual or family need to considered moving in order to keep the budget balanced.
For example, if a family lives in Las Vegas, NV and continue to struggle from month to month due to the higher cost of living, a move to a town with a lower cost of living may be helpful. If new jobs are found in the new town, the pay may be less but the cost of living may offset the reduction in income.
Balancing the Budget in Your Home
Once all of the above factors are noted and taken into consideration, establishing a balanced home income budget is much easier. The budget result should always be $0. That means all monies need to be allocated to a specific debt or account for savings. This $0 does not mean being broke every month, it just means there is no money left in limbo with no home. All balanced budget end in $0.
The four major “accounts” used in a balanced budget include income, debt, savings and emergency funds.
- Income will be the sum of all monies coming into the household.
- Debt will be the sum of all monies paid out to creditors.
- Savings will be the sum of all monies placed into formal savings accounts or funds.
- Emergency funds will be the sum of all monies placed into a separate savings account as a “rainy” day fund. This fund can be used for car repairs, home repairs and unexpected debt.
Calculating the Balanced Budget
The mathematical calculations for balancing a budget are:
Income - Debt - Savings - Emergency Funds = $0
Please be sure to check out the other tips and strategies in Bright Hub’s collection of personal and household budgeting guides.