If you are going to set up a household budget, you're going to need to prioritize your spending. You simply cannot buy everything you want. You have to purchase the things you really need first.
So, how do you separate your "wants" and "needs" so your household budget will be successful?
To set up a household budget you will need to do three activities:
- List your income.- List your expenses.- Set priorities and make changes so that your income will be greater than your expenses.
Listing your expenses is important because it allows you to see where your money goes. Setting priorities will help you control spending so it is less than your income.
You'll need to keep an accurate record of everything you spend. Carry a notepad with you so you can write down the cost and short description every item you buy.
You can group individual items into categories to make your expenses more understandable. Keep recording your expenses for a full month.
After a month of recording everything you spend, you're ready to set some priorities. This means that your household budget may reduce or eliminate spending for some items in order to make your expenses come below your income.
It's always painful to begin cutting back. But, you will probably be the first to admit that your spending has been somewhat out of control.
So, are there objective ways to establish priorities within your household budget that can help minimize the pain of setting spending limits?
=== Objective Standards for Household Budget ===
Yes. The primary contribution of respected psychologist Abraham Maslow was a hierarchy of human needs. This prioritizing of needs can give you some guidance for setting your household budget priorities. This hierarchy has been described in the following form (starting with the most important level):
1) Physiological needs (food, water, sleep, personal hygiene)2) Safety needs (employment, security of income, protection from violence, family security, health)3) Love / Belonging needs (friendship, family relationships, social networks)4) Esteem needs (recognition, self-respect, sense of contribution)5) Self-actualization (ability to use your talents, creativity, appreciate life)
=== Applying The Hierarchy to Your Household Budget ===
In setting up a household budget, you should allot money for items that satisfy the physiological and safety needs before allocating money for needs at other levels. Let's see how this works.
The physiological needs are the most important. You need food, water, sleep, and personal hygiene to survive. This helps set your household budget priorities.
Expenses related to these needs take first priority. Basic nutrition, shelter, and personal hygiene expenses take first place in your household budget.
Next in line are the safety needs. These needs include enabling you to support your family and keep them safe. Basic expenses for transportation to and from work, clothing for work, making your home and neighborhood secure (which include taxes), and health care are included here.
But, here is where you need to be careful.
Let's look at some of the household budget items included in these first two areas such as food (basic nutrition) and transportation to and from work.
It is easy spend more money than is required to satisfy these basic needs. You may confuse expenses for basic necessities with money that would contribute to recognition and self-esteem (need levels beyond the basic levels).
For example, buying nutritious groceries and making healthful meals at home helps fulfill your basic physiological needs. But dining out in fine restaurants goes beyond the basic needs. Frequenting fast food restaurants may be convenient, but is probably more expense than a simple nutritious meal at home--and fast food is likely to be much less nutritious.
You could also consider transportation requirements for work. There is a basic level of transportation that fulfills the requirement to safely and reliably go between home and work. And there is a more luxurious, and expensive, level of transportation that fulfills the self-esteem needs.
In setting up a household budget you must carefully consider how much to budget to satisfy these basic physiological and safety needs. Reducing expenses for some items may be inconvenient and seem a little harsh. But, if there is money left over after satisfying these basic needs, you can allocate money to other levels of needs.
So, let's say you do have money left over in your household budget after estimating how much you must spend to satisfy the needs in the first two levels.
You can then allocate money for “Love / Belonging needs”. These activities might include family entertainment, occasional dining out, or for a family trip or vacation. Other items to consider here are cable TV, Internet, and attending a movie. You could also include magazines and newspapers in this category.
If you have money in your household budget left over after allocating it to this category you can allocate money to items that fulfill the next category.
When the money you can budget runs out, you know that spending for items not yet covered will have to be deferred. This is the part of making a household budget that seems painful. But, it also relieves you of the anxiety of wondering when the bill collector is going to call or the court is going issue a wage garnishment order.
So, you can prioritize the items in your household budget in a fairly objective way using Maslow's hierarchy of human needs. Maslow's hierarchy of human needs will help everyone understand your household budget, give it their support, and make it successful.