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Personal Finance for house hold

Krishn Patel

• 2 min read

1. Determine Your Income:

  • Calculate your net income: This is the money you actually receive after taxes and other deductions.
    • If you have a regular salary, this is straightforward.
    • If your income varies (e.g., freelance, gig work), calculate an average over several months.
  • Consider all income sources, including:
    • Salary/wages
    • Side hustles
    • Investment income
    • Any other regular income

2. Track Your Expenses: A Detailed Approach:

  • Gather Your Financial Data:
    • Collect all your bank statements, credit card statements, receipts, and any other records of your spending for the past 1-3 months. This will give you a clear picture of your spending habits.
  • Categorize Your Spending:
    • This is extremely important for understanding where your money goes. Common categories include:
      • Housing: Rent/mortgage, property taxes, homeowners/renters insurance.
      • Utilities: Electricity, water, gas, internet, cable/streaming services, phone.
      • Groceries: Food, household supplies.
      • Transportation: Gas, public transport, car insurance, car maintenance, parking.
      • Debt Payments: Credit cards, loans (student loans, personal loans, car loans).
      • Entertainment: Movies, concerts, subscriptions, hobbies.
      • Dining Out: Restaurants, cafes, takeout.
      • Personal Care: Haircuts, toiletries, gym memberships, clothing.
      • Healthcare: Medical bills, prescriptions, insurance premiums.
      • Savings: Emergency fund, retirement, investments.
      • Miscellaneous: Gifts, donations, unexpected expenses.
  • Detailed Tracking Methods:
    • Spreadsheets: Create a spreadsheet with columns for date, category, description, and amount. This allows for detailed tracking and analysis.
    • Budgeting Apps: Utilize apps like Mint, YNAB (You Need a Budget), or PocketGuard. These apps often automatically categorize transactions and provide visual representations of your spending.
    • Manual Tracking: If you prefer a hands-on approach, use a notebook or a dedicated expense tracking journal.
    • Bank and Credit Card Tools: Many banks and credit card companies offer online tools that categorize your spending and provide spending reports.
  • Distinguish Between Fixed and Variable Expenses:
    • Fixed Expenses: These are consistent costs that stay relatively the same each month (e.g., rent, loan payments, subscriptions).
    • Variable Expenses: These fluctuate from month to month (e.g., groceries, entertainment, dining out).
  • Sub-Categorization:
    • Within broad categories, consider creating sub-categories. For instance, within "Groceries," you might track "Produce," "Meat," "Dairy," and "Pantry Items" separately. This provides even more granular insights.
  • Regular Review:
    • Set aside time each week to review your expenses and ensure accurate categorization. This will help you identify any areas where you're overspending.
  • Consider Cash Envelope System:
    • For variable expenses, consider using the cash envelope system. Withdraw a set amount of cash for each category and only spend that cash. This can help prevent overspending.
  • Compare income and expenses:
    • If your income is greater than your expenses, you have a surplus.
    • If your expenses are greater than your income, you have a deficit.
  • Allocate your money:
    • Prioritize essential expenses (needs) over non-essential expenses (wants), meaning allocating your money first towards things vital for survival and well-being (like housing, food, and healthcare), and then towards things that enhance your lifestyle but aren't crucial.
    • Set aside a portion for savings and debt repayment.
  • Consider the 50/30/20 rule:
    • 50% for needs
    • 30% for wants
    • 20% for savings/debt repayment This is a general guideline, and you can adjust it to fit your situation. Remember:
    • Needs: These are essential for survival and basic living, such as housing, food, healthcare, and utilities.
    • Wants: These are non-essential luxuries that enhance lifestyle, such as dining out, entertainment, vacations, and designer clothing.
  • Set financial goals:
    • Short-term goals (e.g., emergency fund, vacation)
    • Long-term goals (e.g., retirement, homeownership)
    • Include these goals in your budget.
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