Does your household budget even out every month, or do you run your budget in deficit and actually increase your debt every month?
How do you map this?
You start by thorough examination and accurate listing of all your expenses versus your entire household income, as well as your debt-to-saving ratio. This process is called “mapping”. The purpose of the mapping process is to provide information on how you manage your household finances.
Productive mapping includes:
- Data collection (don’t panic! We’ll help you through the process and it’s simpler than you think)
- Mapping out your economic status (income versus expenses)
- Income calculation
- Debts list
- Savings List
- Data Summary
In the table below you can find the list of documents you should collect in order to get a true picture of your economic situation. Collect all the relevant needed data and file it in an orderly fashion according to the type of expense or income. Using a binder, sort each receipt / bill (for example electrical bill, phone bills, etc.) in separate sections of the binder.
So, what do we need to get started?
|How Far Back?||Documents Needed|
|3-4 months||Bank Statements (Checking and Savings)|
|3-4 months||Credit Card Statements|
|1 year||Water Bill / Statement|
|1 year||Electric Bill / Statement|
|1 year||Gas Bill / Statement|
|1 year||Municipal Taxes / Bills / Statements|
|1 year||Home Phone Bill / Statement|
|1 year||Mobile Phone Bills / Statements|
|1 year||Internet Bill / Statement|
|1 year||Cable Bill / Statement|
|6 Months Back||Full time employees: Salary Statements|
|Last year trial-balance and assessment, and for current year until last month||Independent Business Owners: Annual Accountant Report|
After finishing the task of collecting and filing the household paperwork, it is time to work on the mapping. The mapping stage is not an easy one, neither in its technical aspects nor in its emotional onslaught. Some families go through feelings of despair that can even escalate to mutual accusations once the complete data is in front of them and fully exposed. Therefore, we recommend clearing the schedule and allowing time for the accompanying physical and emotional processes to take their course.
Now, take a deep breath and let’s get started
The mapping process will be based on the annual income and expenses data, without monthly debt payments (if you have any), as we will deal with them at a later stage.
Add up all your expenses over the last few months (at least 3 months). Divide the sum by the number of months you added up.
The formula to use:
Expenses Sum / Number of Months = Average Monthly Expense
During the last 3 months a family paid about 1,200 NIS on clothing. Therefore, the Average Monthly Expense will be about 400 NIS.
1200 / 3 = 400
- For every section, for which you have an actual statement (credit cards, bank accounts, other bills), the Average Monthly Expense will be calculated based on the actual numbers in the statement and not based on an estimate.
- For bi-monthly expenses (Gas/Electrical bills, etc.), or an annual bill (like car insurance and registration), divide by the number of months that this bill is for and not by the number of bills/statements.
- Estimated Expenses: Every family has expenses for which there is no written record (cash expenses, etc.). These are called “Estimated Expenses”. For these types of expenses, you actually use an estimated amount. Try to analyze your past actions and try to recall such expenses during the last quarter.
- Write down your average monthly income.
- For the income section, make sure you use the “net income” (look it up in your paycheck statement, which is the net amount after taxes) and not the “disbursement amount” (the amount sent to deposit in the bank after the additional deductions).
- The additional deductions that are listed in your paycheck (loans, meals, etc.) are added to the appropriate expense section, or to the list of debts.
Now that you have analyzed your income and expenses, it is time to map out your debts.
Write down all your ongoing debt payments.
- These are one-time debt payments, or monthly debt return payments (i.e. bank loans, fixed credit card loan payments, etc.).
- You must also add special debts payments which are not on paid on a monthly basis and/or a fixed amount (i.e. personal family debt, returned check, bank overdraft, etc.).
List all the money you have saved up over the years.
For each type of saving list:
- The actual amount listed in the saving account/statement
- The payment amount deposited in the saving account each month
- Maturity date.
- Add any relevant note regarding your savings, if and as needed for further clarification.
Now, add up all the collected data:
- Check the bottom-line amounts of income and expenses
- Calculate the balance between your income and expenses
- Add your debt return amount and calculate the total difference, considering all your liabilities.
If the balance is a negative number, meaning you have more expenses than your total income, then your household budget is unbalanced and you actually increase your debt every month. If you now multiply the monthly balance by 12 (months) you will get the annual negative balance you accrue, if you don’t change your fiscal conduct.
Did you complete the mapping process successfully? You should pat yourself on the back. You have earned it. You have just completed a thorough study of your income and expenses. This is a time-consuming step that requires a lot of patience to complete.
you now have solid ground for a great budget building which should allow you to reach the expected balanced household budget, and hopefully even a positive cash flow for future savings.
Budget management: Stage 1 – Making the decision
Budget management: Stage 3 – Building the Budget