How to make a household budget – You work hard to earn a living. You should make sure you spend the money you bring home wisely.
That’s where a household budget comes in. It’s a good tool to see at a glance what we have coming in, what’s going out (and what that money is paying for) and if there’s anything left at the end of the month to put into savings.
Before we dive into exactly what a budget can do for us, let’s consider for a minute what will happen if we’re not tracking income and expenses.
Why You Should Make A Household Budget
We may end up spending more than we’re making in a given month (or two, or three). Over time that can put us into some pretty hot water financially. We may also spend a lot more than we’d like to believe on things like eating out, going to the movies or new clothes.
Having a budget gives us more control over where we want to really spend our hard earned cash. Maybe that’s dinner and a movie, but maybe it isn’t. Wouldn’t it be nice to have an actual choice?
A Household Budget Tracks Where Your Money Is Going
A budget simply tracks your money. You record where the money comes from each month (your income) and then write out everything you spend it on, starting with your regular monthly bills like mortgage or rent, car payments, utility bills etc.
What’s left after all the bills are paid is your discretional income.
A Household Budget Helps You Identify Things You Waste Money On
Having it all in front of you in black and white helps you identify things you’re wasting your money on.
It makes you reconsider if you really want to spend well over $200 a month on Cable TV or $150 on your large cell phone plan. Or how about that yearly magazine subscription to something you no longer read?
Go through your expenses and reevaluate if this is REALLY how you want to spend your pay check.
A Household Budget Allows You To Be Proactive About Savings
Saving money without a budget is hard. We go in with the best of intentions at the beginning of the month, but somehow there isn’t anything left at the end of the month.
A budget gives you a chance to be a bit more proactive. Set aside some money for savings at the beginning of the month, even if it’s just $20.
Put it in the budget as a regular expense, just like you do with your other urgent bills. If you need to, open a separate savings account so you’re not tempted to spend it.
A Household Budget Ensures You’re Not Spending More Than You’re Making
Most importantly, your budget will keep you on track and help you make sure you’re not spending more than you’re making. And I don’t have to tell you that that’s pretty important for your financial wellbeing.
How To Make A Household Budget That Puts Your Savings On Auto-Pilot
Putting a little money away for a rainy day isn’t always easy. You may have some good intentions, but at the end of the day, there just isn’t any money left. Somehow whatever you make is spend before you make it to the next paycheck.
Start by making a personal budget. Take a look at what you bring in each month. Next, write down your fixed expenses. These are things like rent, car payments, utilities etc.
Figure out how much you need each month for groceries and other essentials. This is your bare bones budget. It’s good to know what you need to get by each month.
Next, it’s time for a little bit of math
Start with what you bring in each month and subtract all your core expenses.
What you’re left with is your discretional income. This will pay for entertainment, clothes, getting your nails done etc. And from here on out, part of that discretional income will go into a savings account.
Pick a number you’re comfortable with
Maybe that’s just $20 per month, maybe it’s $500. Put it in your budget and treat it like any other bill. It won’t take you long to get into the habit of setting aside that money for savings.
To make it even more hands-off, talk to your bank about setting up a separate savings account. Then set up an auto-deposit to have the savings transferred to the new account as soon as your paycheck comes in each month.
If you don’t see it, you’ll never miss it and your savings will run on autopilot.
Don’t forget to audit your savings from time to time. Take another look at your budget.
Can you increase your savings a little more?
Another great way to boost that savings account is to take any extra money – thinks like birthday cash, tax return, bonuses etc. – and put them straight into the savings account. Again, you won’t even miss the money, but it will help you build up your savings quickly.
Make sure your savings are sitting in an interest-bearing account
Since you won’t be touching this money unless it’s a dire emergency, you should be able to earn at least a little interest. Talk to your banker about your best options and start putting your savings on autopilot.
One last tip: Talk to your employer about matching 401K funds. You may be able to get a contribution from the company you work for towards your retirement savings account.
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