How to Create a Budget for Your Household

Creating a household budget helps you plan for your financial future.

Creating a household budget is an important step for people who want to control their spending. Tracking every penny earned and spent can help you get control of our personal finances and put you on track to financial freedom. Keeping track of your income and expenses can be time-consuming and overwhelming at first, but budgeting is not too complicated and can quickly become a habit. The key is to start with what you know and build upon it as you gain confidence -- and savings.

Difficulty:

Moderate

Instructions

Things You'll Need

• Ledger or spreadsheet software
• Financial planning software (optional)
• Bills and receipts
• Income statements

1. Start with a new document -- either a blank ledger, computer spreadsheet page or financial software program. Any of these methods will work, so choose the one that you're most comfortable with.

2. Determine the frequency of your budget. You can establish a weekly or monthly budget, for example. The frequency may depend on when your bills are due and how often you get paid. No frequency is better than the other; just be consistent.

3. Identify your income. This may be from your job, your spouse's job and investment dividends or interest. Once you have identified your income streams, calculate an average income you bring in based on the household budget frequency that you chose. For example, if you have a monthly budget and get paid weekly, you need to multiply your paycheck amount by four to get monthly income. Divide quarterly paid dividends by three to get a monthly amount.

4. Review your bills, checkbook and bank statements to determine where your money is going. Fixed expenses include items such as your rent or mortgage, in which you pay the same amount every period. Variable expenses are those that change with each bill, such as groceries, fuel, medical expenses and entertainment. Estimate the amount of money you spend for each item per the budgeted period of time. For variable expenses, average the amount you've spent per item -- total the spending over three months and divide by three to get a monthly amount.

5. Start tracking your income and expenses and documenting your results. In your budget, note the date of the transaction, what occurred (such as receiving a paycheck or paying your rent) and the amount you spent. After you have documented your results for a few cycles, analyze your data. This is where budgeting software has an advantage, as most software packages include special reporting features to help with this task.

6. Adjust your budget accordingly. You may find that you consistently exceed or meet your budget in certain areas but spend too much in other areas. Change the amount you budgeted for these items so you stay on track.

Tips & Warnings

• Consider purchasing software to help assist you in the preparation of a household budget.

• You also could hire a certified financial planner to assist you in preparing a budget if you can afford it.

• Tracking your income and expenses can be time consuming and overwhelming at first.

References

• CNN Money: Making a Budget