Your Household Is Like Your Business: Balance the Budget

The average American saves -1% of their income which means they spend more money than they earn. If we take a look at the mean household unsecured debt, which means not secured with an asset, we find the amount ranging from $8,000 to $10,000 per household. That debt has an annual interest rate somewhere between 13% and 22% making it exceedingly costly.

Your house is like your business. In your business you have income and expenses. The more income you earn the better off you are while the more debt and expenses you incur the worse off you are. If your business goes bankrupt you have nothing after all those years of work. Allowing your household to go bankrupt is more of a sign of poor planning than financial trouble.

As we begin to think of our household as a business we learn that some product simply aren't worth purchasing even if we are making millions of dollars a year. Think of the price of groceries and how in a business we would buy those products in bulk but in our household we seem to purchase small quantities. That is like throwing money into the water.

In our houses, like in our businesses, we have some expenses which are fixed and some that are variable. For example, the payment, insurance, taxes, etc. are considered fixed income. On the other hand credit card payments, gasoline, food, supplies, etc. are considered variable expenses. We have more control over variable expenses and should consider tackling problems there firs.

The first item we should tack is things like cost of items like clothing, food, gas money, eating out, etc. These items can be easily adjusted if we choose alternatives that we still enjoy. For example, let us say you spend lots of money at your local grocery story buying the best items. Switching to a discount food supplier or a wholesaler will save you 30% of your bill. Likewise, you might like playing golf but get bored after 10 holes. Instead of paying for 18 holes just pay for 9 and save your day for something else.