Developing a Household Budget
Tax tips from Warwick RI accountants Stephen T. Gentile C.P.A.
When developing a household budget, the first thing to do is to summarize what you are currently spending. You generally want at least three months summarized, but six to twelve months is better. You can develop this summary in one of several ways: 1) pencil, paper and adding machine, 2) a spreadsheet such as Excel (there are some templates that might help), or 3) one of several programs like Quicken. The primary purpose of this exercise is to identify where you are currently spending your money.
You should then classify the items you are currently spending into three basic groupings: 1) Recurring Expenditures (such as mortgage, utilities, food and other recurring monthly expenses). 2) Financial Goals (such as funding your 401k or IRA, health insurance, college expenditures) and 3) Discretionary Spending (such as recreational items and hobbies).
Look for benchmarks to use as a guideline. Below are some suggested benchmarks for categories of spending. The percentages are expressed in relation to total household income. However I offer this warning, “one size does not fit all.” These percentages are only suggestions and care should be used when considering your personal financial circumstances.
1. Housing 25%
2. Utilities 8%
3. Food 14%
4. Clothing 4%
5. Medical/healthcare 6%
6. Charity 4%
7. Savings/Insurance 10%
8. Entertainment/Recreation 5%
9. Transportation 14%
10. Other debt or discretionary 10%
In most families, developing a budget can be a difficult matter. A budget, however, is an important tool to set financial goals and realign spending that will ultimately help to achieve your financial goals.
For more information of this topic or any other financial or tax matter, please call (401) 739-6110, email us or visit our website here http://gentilecpa.com/.
Gentile Stephen T CPA
109 Airport Rd
Warwick, RI 02889