Sunday, August 11, 2013

Book "Home Finances for Couples". Extract from Chapter 6. How to manage home budget: regular technique

I plan to publish my book "HOME FINANCES for COUPLES. 
Resolve Money Problems in Marriage and Learn Easy Steps to manage Family Budget"
on August 20th, 2013.

At this blog you can taste pieces that are ready. 

Here is the extract from Chapter 6. "
Regular Technique:  Incomes and Expenses".

Technique Description

As you might guess, the regular technique is about recording incomes, along with expenses. Obviously, a husband and a wife each wants to know their net savings for each month, and they plan on that.
Let’s imagine Lou and Oki’s household. Their list of incomes is much shorter and easier to maintain than the expenses list.

Lou and Oki’s other incomes include the money they make outside the main job. The typical examples include an extra job, freelancing, selling homemade stuff, etc. You can also see that this family intends to invest money and differentiates investment returns with the interest on bank savings accounts. 

Once the regular technique is applied, Lou and Oki are able to create a primary report for home finances. It’s called an Income Statement, and it shows your household’s net profit. That’s one thing you need to discuss the most during your Family Financial Board monthly meetings.
Here is what Lou and Oki’s Income Statement looks like:

As you can see, Lou and Oki’s Net Profit (Net Savings ) for January was 9.2% of monthly income, that’s 559/6078.  That is one of the most typical questions  “How much should we save, relative to our income?”

I know that personal finance experts advise 10%, which, in my opinion, is fair for a typical family. The exact number depends on your big-picture goals, and, in many situations, it should be more than 10%. There is an optimum between spending and savings for each individual situation. I diagnose extremes in spending/savings balance for a typical family by looking at two indicators:
1)                 Savings less than 5%
2)                 Not taking into account investment returns savings are more than 50% of monthly income (a too frugal lifestyle)

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