Developing a household budget is one of the most effective ways to get a handle on your finances and avoid money troubles, but putting one together can take a little time. Here’s a simple, step-by-step process for creating a budget that works for your family.
Determine the Amount of Total Income
The first thing you need to know is how much money you have to work with. How much do you make, or expect to make, on a monthly basis after taxes? Besides your primary job, do you have any additional sources of monthly income? Does your spouse or significant other work? Add up your total amount of household income.
Determine the Total Cost of Your Monthly Bills/Expense
These monthly expenses will include things like your mortgage/rent, utility bills (power, gas, water, sewage), insurance payments, internet/phone bills, car payments, loan payments, credit card bills, and medical bills.
Add them together so you know the total amount you owe each month. For bills that are subject to change month-to-month (utilities, phone bills), determine the average amount you pay and round up.
Determine the Average Cost of Additional Monthly Spending
Besides bills, what are your other monthly expenses? You can break this down into sub categories.
- Groceries/Food
- Basic Items
- Personal needs
- Toiletries
- Dish soap/cleaning supplies/laundry detergent
- Transportation costs
- Gas
- Repairs/maintenance
- Public transportation fees
Factor in Discretionary Spending
How much do you spend a month going out to eat? What about getting coffee? Do you frequent the movies or go out for concerts and sporting events? Bring all your receipts and bank statements to the table and add up how much you’re spending on entertainment, eating out, etc. per month.
Lastly, Consider Any Additional, Non-Monthly Costs
What’s happening this month that might require extra spending? Birthdays, anniversaries, vacations, a concert, events, etc. Non-monthly costs such as these are often easy to overlook. Be sure to factor these in each month.
Set Up a Spreadsheet or Budget Software
Now that you’ve determined your categories and their totals, you need to add everything to an electronic spreadsheet or some type of budget software. This is what will help you get a handle on your spending. The goal of any budget should be to reduce your outgoing expenses so that they’re less than your income.
With all the numbers in front of you, start considering where you can cut and save. Perhaps you’re spending too much eating out, or maybe you can reduce your grocery bill by cutting back on snack foods and brand labels. For a closer look on how you can save money and cut spending, check out our blogs on reducing unnecessary spending or paying off your debts.