How to create a household budget
A household budget is a finance plan that allocates future personal income towards expenses, savings, and debt repayment.
Welcome to my series, How To Use Money To Make You Happier. In the introduction section, I gave some stats and mentioned a few reasons for starting this series. I am going to break this series into a couple of steps:
- Introduction
- Make SMART financial goals
- Create a budget
- Income
- Expenses
- Needs and wants
- Debts
- Difference between good and bad debt
- Pay off debt
- Use the credit to your advantage
- Give to charity
Introduction
Budgeting has only one rule: Do not go over budget – Leslie Tayne
A debt problem is, at its core, a budgeting problem – Natalie Pace
When it comes to money and so many other things in life, understanding your weaknesses and strengths can help you with your future plans – Tagene Brown-Mcbean
If there is one thing, I have learned being in the wealth management business, teaching financial planning, and counseling people over the last two decades is that Americans do not like to create a budget. As a result, I have heard it all. Jerry, you are taking away all the fun from life. You mean I cannot take three vacations a year. I cannot buy a new pair of shoes every month. I cannot buy expensive makeup. I cannot eat out all the time. No! I am not saying that. In conclusion, I am empowering you to live within your means by creating a household budget.
The main goal of a household budget is to show how much money you are making a month and how it is spent. It is the foundation to build your financial future. Above all, a budget helps you to use your money efficiently.
A household budget gives you control. It allows you to balance your income with your expenses.
If you do not balance your budget and spend more than you bring in then you end up in debt.
Income
The first step in creating your household budget is to look at your monthly net income. If you get paid on the 15th and the 30th of the month and you get $2,000 every payday then your monthly income is $4,000.
Expenses
It is important to keep track of all your monthly expenses.
I like to break down expenses into fixed, variable, and discretionary.
The first thing to look at is your fixed expenses. The fixed expenses could be your student loan payments, car payments, rent, or mortgage. These payments are fixed and you cannot decrease them.
The second thing to look at is your variable expenses. These expenses can change from month to month and would include gas and groceries.
Discretionary expenses would include shopping, entertainment, travel, and recreation.
The bank or the credit card will provide you with a proper breakdown of your expenses.
You have now documented your net monthly income and your fixed and variable expenses. You can see where your money is going and you can make changes. If you make $4,000 a month and you are spending $3,600 and saving $400 a month, give yourself an A+. If you are spending more than $4,000 a month, then you need to look at your discretionary expenses and changes need to be made.
Create a System
I will let you decide if you want to use a pen and paper, Excel budget template, money management apps, budget calculator, financial software, or a system designed by the financial gurus. At the end of this article, I will give you a simple example of a budget worksheet.
Advantages of having a budget
- It empowers you and gives you control
- It keeps you focused
- It shows waste
- Reveals your spending habits
- Reduces stress
- Helps in becoming more disciplined
- Helps you focus on your goals
- Motivates you to save for vacations and unexpected bills
Needs and Wants
You cannot always have what you want. Sometimes you get what you need. – Linda Berdoll
Supply the needs first and the wants later, for one can only obtain true peace, love, and joy when one supplies the needs first and not the wants. – David Benedict Zumbo
A need is something you have to have in order to survive. Food, clothing, shelter, and health care are examples of a need. A BMW, Nike shoes, Polo T-shirts, eating out, going to the movies are wants. Try to spend 80% of your income on needs, 10% on wants, and save 10%.
Example of a Household Budget
Monthly Income _____ Insurance _____
Net Income 4,000 Car
Dividends Health
Interest Life
Benefits Home
Charity _____ Personal _____
Savings _____ Groceries
Vacation Personal
Retirement Other
Wants Miscellaneous
Credit Card Debts _____ Entertainment ______
Visa Meals
MasterCard Movies
Amex Gym
Loans _____
Student
Car
Home _____
Mortgage/Rent
Taxes
Heat
Water
TV/Cell/Internet
Monthly Income minus all your expenses let you know if you are over or under budget
Finally, it is important to review your budget, every quarter. A budget is a piece of art and not an exact science. Look at some of the areas you need to get better. If you are getting better reward yourself.
There will be times when you have an unexpected expense. That is when your savings come in handy.
Email me back as to how this has helped me and any other questions you may have.
Photo Credits: NORTHFOLK Dan Dimmock Omid Armin Avel Chuklanov
I agree that budgets are very important. I know a lot of people who use YNAB to plan out their budgets month by month and helps keep track of their metrics over time. Ofc you can also do it on excel if you have the time.
There is something to be said for creating a budget and sticking to it. It sounds so simple that you should spend less than you take in but people can’t seem to understand that concept. These are some excellent tips to follow for anyone.
Money & time are two aspects of life, which if not managed well can lead to unhappy mimenrs. I loved your perspective about listing it all down on paper & not going over budget at any point in time.
Yep, you’re so right! Having a budget makes you feel in control and realize those areas where you could save something more.. I’ve been telling me this for months, and for some reason, I keep postponing it. I really need to start taking this more seriously !!
Life can be very expensive at times, so it’s good to know exactly how much money you have. This is a very helpful post.
I love this article, youngsters these days hate to budget. Their expenditure goes beyond what they earn. Using credit cards without budgeting is asking for trouble. My father always advised us to spend according to what we have and not what the credit card allows. Till date my husband and I spend only how much we have and not beyond that. That meant that when our kids were young, we had to opt to pay for their extra activities over holidays.
Thanks for having an open conversation about money and budgeting. Oftentimes there is a stigma about talking about money yet the only way you can move ahead with your financial goals is to be open about where you are and where you want to go.
I literally suck at creating household budgets. 🙈 This post will help me out. And people like me. 😊
Without an accurate picture of what’s coming into and going out of your bank account, you can easily rely on credit cards and loans to eat and pay your bills! great tips thank you!
Great advice! I am amazed at how many people have no grasp of financial anything and just spend, spend, spend, even though they KNOW they don’t have the means to! They should definitely follow your advice.
Thank you for sharing this post. I need to do a new budget since I have not done one in years and it does make me feel in-control. Happy Spring, Kippi
Great post I must say. Thank you for posting this. I have printed the budget sample and will use to plan our family budget.
This is great.. I can’t remember the last time I actually wrote my budget down. I’m going to get more organized!
very useful! We as family struggle a lot with budgeting, it is very hard on me. I totally suck on it
I love this. Budgets are soooo important to wealth and knowing where the money is going and need to go.
You’ve got some great advice here! I think there should be a class in school with this kind of information, helping kids learn about household budgeting before they are living out on their own!
Really informative post about budgeting. I have always said that budgets are important as otherwise it is all too easy to overspend and for things to spiral out of control.
Great tips. I always keep track of all my expenses vs. my income
This is something I really need to work on! I can never stick to one month after month!
I 100 percent agree that’s budget is necessary for any sort of financial success. This is a super comprehensive post. Thank you for putting some things into perspective.
Creating a budget is so important! According to your advice, I’m going fairly well with the spending/saving aspect because I do save money each month. But I have no real idea what my money goes to because I haven’t created a budget. I just pay bills and move money into my savings account. I need to follow more of your advice on this subject, Jerry!
Erica, thanks for commenting.
Please create a spending plan and that way you will see where you money is going.
I am doing a new budget as I write this! Great timing…husband and I hope to have our new budget in effect on Monday. I’ve bookmarked this so we can make sure to hit all the high points!
Loads of helpful info in this blog post, I am working on a new budget and this was a great help. Thank you !!
I need to do this more diligently. Thank you for making something that causes me anxiety help me see it’s doable and necessary.
This is such great advice. i deff agree that knowing your strengths & weaknesss can help!
I have a hard time following a budget so I’m always in the market for tips! I will definitely take all of this into consideration when writing my May budget. Thanks!
Interesting post, we find that putting a set amount into our savings each month on payday really helps along with having a budget.
very well explained
Yes – a monthly budget it the foundation for all personal finance decisions. EveryDollar is a free app to try if you don’t want to do it on paper.
YES! A monthly budget is where it’s at! “In conclusion, I am empowering you to live within your means by creating a household budget.” <– Drop the mic. Angela and I created a monthly budget when our finances were very, very tight shortly after I separated from the military. Our monthly budget template has evolved to be a mix between a zero-based budget and a pay yourself first system. We’ve been keeping a monthly budget for years and years now, and it has been a game changer, for sure!
The “aha” moment for me was when I realized that budgeting allowed me to tell the money what to do instead of being controlled by the money. I know that it doesn’t solve all problems, but it made a huge difference for us.
I literally just published a post about the ability to retire early and the value of a budget. I love the way you laid this out to help so many in need of getting financially organized!
Great overview of what is needed for family budgeting. Thank you for sharing!