How to create a household budget

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By pfincome
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Creating a household budget is an extremely important step for people who want to control their spending. This is even more important in today's weakening economy. My family tracks every penny that is earned and spent which has helped us get control of our personal finances and put us on track for financial freedom. I have put together a list of steps for anyone interested in creating a household budget.

Difficulty: Moderate

Instructions

Things You'll Need:

Old household bills & receipts including: credit card, bank statements, mortgage bills, utility bills, old pay stubs, etc.
Financial planning software, Microsoft Office tools, etc.

Step 1

The first step that you need to complete when creating a household budget is to determine how much money you would like to spend (if any). You could hire a certified financial planner to assist you in preparing a budget. Another option is to purchase software to help assist you in the preparation of a budget. Microsoft Money is a commonly used software product available that many families use to help them prepare a budget. The other option is to create a budget on your own and use Microsoft Excel or any other spreadsheet software available. This is my recommended method if you know your way around the tools and understand your current finances.
Step 2

Once you have decided on how your household budget will be created, you need to determine the frequency of that budget. You can choose to use a weekly, bi-weekly, or monthly frequency to help assist in your financial planning process. The frequency chosen may depend on when your bills are due and how frequent you get paid. I prefer using a monthly frequency as I get paid once per month and I pay all our bills on a monthly basis. No frequency is better than the other, as long as you stay consistent.
Step 3

An important part of the personal budgeting process is to identify your income. This may be from your job, your spouse’s job, or any other means of income generation. Income can be created from stock dividends, interest income, part-time jobs, etc. Once you have a list of your identified income streams, you need to calculate an average of the income you bring in based on the frequency that you chose in step #2. For example, if you are creating a monthly budget and get paid bi-monthly, then you need to multiple your bi-monthly checks by 2 in order to get your monthly amount. Quarterly paid dividends, for example, would need to be divided by 3 in order to get a monthly amount.
Step 4

The key in sound money management is to be able to identify all of your current expenses whether they are fixed or variable. To help assist you in this process, take a look at credit card statements, your checkbook, or past monthly utility bills to determine where your money is going. I have included a list of examples of these expenses to help you get started – home owner’s association due’s, home owner’s taxes and insurance, mortgage or rent, car payments, gas, car insurance, car registration/plates/maintenance, utility bills (water, gas, electric), phone, cable, internet, cell phone, college savings plan, school tuition, medical expenses, groceries, entertainment, investments, savings, newspaper, loans, and much more.
Step 5

Once you have identified all of your expenses in step #4, you need to estimate the amount of money going out for each expense per the budgeted period of time. For example, if you are using a bi-monthly frequency to calculate your household budget and you pay $1,000 in rent per month, you need to divide by 2 to get your budgeted amount. This tasks needs to be completed for each and every expense category. This is an area where paying for a financial planner can help out a lot.
Step 6

Once you have your household budget created, the next step is to start tracking your income and expenses and documenting your results. After you have documented your results for a few cycles, you should begin to analyze your data. This is an advantage of where budgeting software helps out a lot. Most software packages include special reporting features to help with this task.
Step 7

The final step of the process is to adjust your budget accordingly. You may find that you consistently exceed or meet your budget in certain areas. You may also realize that you need professional financial help at this point and seek 3rd party sources to help. The important point here is that you are able to adapt and change to different economic climates when keeping a household budget.