Adhering to a household budget is an excellent habit to develop. It will help you to spend less, save more, and avoid problems making payments or paying excessive interest payments on credit cards. In order to create a household budget you will just need to document your current spending and earnings and the financial discipline to adjust your spending so that you will be on better financial footing.
1. Decide how you will document your household spending, earnings, and budget.
You can use a simple pen and paper but it is much easier to use a spreadsheet program or a simple accounting program if you have access to one.
2. Format the columns of your spreadsheet.
Work from left to right. Use titles for columns such as “Date of Expense”, “Amount of Expense”, “Payment Method”, and “Fixed/Discretionary”.
3. Categorize your expenses.
Each entry should go into a category so you can easily see how much you spend on monthly and yearly bills, regular essentials, and discretionary costs. This will help you when you go to input your expenses and when you want to look through them for a specific expenditure.
4. Put your biggest regular expenses into the spreadsheet or ledger.
Some examples would be car payments, rent or mortgage, utilities (such as water, electricity, etc), and insurance (medical, dental, etc). Installation payments, such as student loans and credit cards, also go in here. Make a separate row for each expense. Put in estimates as placeholders until the actual bills come.
5. Calculate your regular essentials.
Brainstorm what you regularly spend money on and how much. How much per week do you spend on gas? What is the usual amount that you spend on groceries? Think of other essential things that you need, not want. After you have made rows for each of these expenses, put in an estimate of what you spend on it. Once you have the actual amounts you spend, input them immediately.
6. Input your discretionary expenses as well.
These include big-ticket items that you can cut out or do not provide you with the level of enjoyment worthy of the price. These could range from anything such as expensive nights out to take-away lunches and coffee.
7. Target specific areas of your spending to decrease.
Set limits on discretionary spending in particular. Pick a set amount that you cannot go over each month and stick to it.
8. Estimate and incorporate contingency expenses into your budget.
By incorporating expenses for possible contingencies into your budget, unexpected medical, car, or house maintenance costs will have less impact on your overall budget and financial health.
