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How to Manage a Household Budget

Updated on November 14, 2014

1. Understand your monthly spending patterns.

Build your monthly budget in steps.

  • Start with your fixed monthly payments (house, car, electric, cable bundle, water/utilities, credit cards, etc)
  • Estimate monthly food budget by adding all food and dining expenses for three months and dividing by three. Do not include non food items.
  • Estimate transportation costs by adding all transportation related expenses for three months and dividing by three.
  • Estimate household (non-food) expenses by adding all house related expenses for three months and dividing by three. Do not include clothing.
  • Estimate monthly clothing budget.
  • If you have other major categories of expense, include them here.

This is your monthly spending, as is.

Monthly Expenses (These are the basic categories, you may have others)

(click column header to sort results)
Item  
Monthly  
Notes  
Rent/Mortgage
$1200
 
Car payment
320
Put gas and maintenance costs under "transportation"
Electric
98
Average over six months
Cable
132
 
Water/Utilities
99
Average over six months
Credit cards
1200
 
Food
1000
Track your spending on food for three months to arrive at a preliminary baseline.
Transportation
150
Include all car maintenance and fuel costs, public transportation, etc. Put vacation costs under "travel"
Household
150
Do the same as for food
Clothing
150
Do the same as for food
Entertainment
200
Do the same as for food
Travel/Vacation
250
Divide the cost of your vacation by 12 months
Telephone
200
 
TOTAL
4999
 
Create a Spending Table With all of your Regular Monthly Expenses

You need to know what you're spending before you can budget your money.

Next you have to analyze your spending patterns

You need to ask yourself three basic questions:

1. How does my spending compare to my income?

Obviously, you must be careful to keep your spending level below your income level. If you find that you do not keep your spending below your income you will need one of the following:

  • A trust fund or some other source of spending money that you have access to use,
  • A line of credit that loans you money you don't have for later repayment (not recommended), or
  • A revised budget that limits your spending to your income

Over the long term, your goal is to keep your spending levels below your income levels.

For example, using the above made up budget as a measure, to cover your spending, you would need to bring home $60,000 a year. Bring home, not just earn.

2. Am I spending carefully when I do spend?

Even if you have kept your spending below your income, ask yourself this second question and look at your spending patterns carefully for an answer.

Odds are that you have bloated excesses in your food and household spending, if they exist. It is also likely that you spend too much on transportation and entertainment. You might also find that there are a series of habitual repeated purchases that aren't necessary for survival.

Look closely at all of your spending and reduce your budget where you can.

3. Where can I spend less?

The answer is: everywhere! If you are outspending your income, you have to cut expenses. If you are not outspending your income, finding additional savings allows you to put away more money for the long term. In either case, you need to find places to cut.

Here are my five favorite in no particular order:

I. Food. Eat out less, prepare more home meals. It's that simple. It takes a little effort if you are not a natural in the kitchen, but it pays big dividends.

II. Entertainment. Go out less, drink at home with friends, follow less established bands, wait for the DVD, and so on. This is flexible spending. Make sure it doesn't push your spending over its limits.

III. Clothing. Approach clothing from a wardrobe perspective. Know your colors and your styles and have the bare minimum. Stop buying things you only wear once or twice.

IV. Electricity. Small savings, but can add up. Replace all lights with compact fluorescent bulbs and turn off light, computers, televisions, etc.

V. Cable. They will sell you the most expensive package you will buy, always. Live with less. Remember when dial-up was the only option? You might look at your telephone package in the same way.

The world is structured to help you find excuses to spend your money. Always spend it wisely.

Include Your Financial Plans in Your Monthly Budget

Ideally, you want to trim your monthly spending so that you have a surplus. Using the above example, you want to reduce your spending below $4,999 a month. Ideally, below $3,500 a month.

The surplus should then be allocated into three saving accounts according to your savings plan. here is one way to allocate:

  • Retirement (50%)
  • Investment (25%)
  • Emergency Savings (25%)

Find the savings plan that suits your needs.

Revise your Budget to Include Savings Plan

 
 
 
Retirement
500
 
Investment
90
 
Emergency Savings
100
 
Rent/Mortgage
1,200
 
Car Payments
320
 
Electric
60
Saved $38 / month
Cable
98
Saved $35 / month
Water/Utilities
99
 
Credit Cards
1,200
 
Food
750
Saved $250 / month
Household
100
Saved $50 / month
Transportation
83
Saved $67 / month
Clothing
50
Saved $100 / month
Telephone
$50
Saved $150 / month
Entertainment
50
Saved $150 / month
Travel/Vacation
250
 
TOTAL
5,000
 
Make the adjustments in monthly spending to afford a savings plan.

Why are you interested in creating a budget?

I am interested in creating a budget because:

See results

Try these excellent suggestions for better spending habits

Finally, to keep yourself honest, track your spending in real time

Use a spreadsheet to create a three month budget. On the first tab, put the budget you have created three times, assigning specific dates to the specific categories. Put the budget amounts in the first column. In a second column link the cell to a cell on that budget items' tab. Create a tab for each of the budget items with a total box in the upper left corner, which you link to the main budget.

Each day, enter your expenses in the categories to know where you stand on your monthly budget.

Don't let money manage you, manage your money.

Best Practices

  1. Put your savings in a different account right away, just as you would pay a bill.
  2. Update your accounting daily. It saves time.
  3. Stick to your budget, do not give yourself excuses.
  4. Revise you financial goals annually.

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