Daily Household Expense – Budgets Answer the Question of “Can I Afford This?”

When the money for your daily household expenses begin to be eaten away on a  regular basis due to the repair bills on your car, it may be time to replace the vehicle. Of course this factors in that the repair bills total more than a monthly payment would be.

How can you know for sure IF you can afford another vehicle?

The question – “Can I afford this?” happens to be a question many consumers regularly ask themselves… and not just about what they drive.

Many Americans go through the month without any idea of their average household expenses. Without a firm grasp on your financial position there is no clear way to tell. You must know and track both income and expenses on a month to month basis. It is the only way to know IF there is enough money left over for any purchases.

Budgets – Yes that “B” word is the only way to determine of you can afford to purchase anything. Budgeting includes tracking income and expenses but also includes money for long and short term expenses.
 
All the income flowing in and regular expenses going out must be accounted for in your budget.

Getting The Budget Started

Budgets do not need to be complicated. Begin by determining how much disposable money you have each month. Don’t take the gross anount. Calculate the disposable income by taking the money you bring home in your paycheck, add in any other income you receive after all deductions.

Tracking expenses – Your next step in building a budget is to look at your regular monthly expenses. Write down all of your bills which must be paid every month.

• House or rent payment
• Utilities
• Phone
• Car payements
• Insurance – Car, Home, Medical

These numbers should be easy to come up with. Although every amount may not be exact each month you should have a good idea on what to expect.

The Hard Part of Tracking Expenses

The “other” household expenses are the ones which are much more difficult to nail down. These expenses are the ones which vary each and every month.

This Expense List includes:

• Gas for the car
• Groceries
• Personal Care Products
• Eating Out
• Trips, Holidays and Vacations
• Gifts
• Etc…

The best and most effective way I’ve found to “get these numbers” is to track your spending for 30-90 days. Most people lose interest after a week or so. For starters site down and write down on a piece of paper what your estimated expenses are. Make it a game and track your estimates to see how realistic your guesses are. I’ve had many people share with me they had no idea they spent as much as they did on fast food or coffee and a muffin in the morning. Giving up and making a few changes put hundreds of dollars back in their control.

Long and Short Term Saving – A Part of The Budget Plan

You now have a starting point of a budget but you’re not done yet. Your income and expenses are a portion of budget. Long and short term savings need to be a part of the budget. Savings should be looked at and considered as important as your bills!

The goal should be to save at least 10% of your income. Some “experts” recommend splitting the amount equally into long and short term saving.

I opt for the Dave Ramsey approach and first build 3 to 6 months of an emergency fund to act as a buffer for those unexpected expenses.

After the “emergency fund” is fully funded begin to build the long term saving. Don’t forget, the money is coming from the money you bring home. For long term investing consult a professional financial advisor before making any investment descisions. 

After going through and building a budget you can answer the question of "Can I Afford This?"

If enough money is left over, after reviewing the budget and can afford an extra payment you may want to make that purchase.

Here is a simple budget formula:
  
Income - Bills - Expenses - Savings = How much extra money you have to pay an extra bill. 

If there is not enough to cover an extra payment? Then you simply Can't Afford It!