How to Calculate a Household Budget
Making a budget is often a task people like to put off until a later time, or something perceived as painful or a waste of time. When it comes to the importance of a household budget, however, there's nothing better than having a specific place to go to see a view of your financial picture and know exactly where your money goes. While different items are more important than others, and no one lifestyle is the same, there are certain items that are consistent in a budget no matter who you are. A budget shows you a snapshot of your spending habits and if you are heading in the right direction financially.
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Things You'll Need
- Paper
- Pen or pencil
- Calculator
- Computer programs optional (Excel, Money, Quickbooks)
Instructions
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Create a column for your income. List every place you receive income from. This can be the $40 you make from mowing your neighbor's yard to your monthly salary from your job. If you are unsure of an amount because it fluctuates, then always write down the smaller amount for an income.
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List your expenses in the next column over. Start with your rent or mortgage payment. This is the bill you will always pay no matter what happens. Below your housing, list your savings. This is non-negotiable and you must list an amount here, no matter how small. Even if you can only save $10 a month, that $120 sitting there after a year can buy you a new tire or pay for a repairman to look at your hot water heater. If your budget does not work, these are the two items you should not alter.
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Utilities come next, as well as anything else you pay monthly, such as your heat, electricity, home phone and water. Anything that is a necessity needs to be listed before items like your cable bill or gym membership. If any of these amounts vary from month to month, always write the larger amount for an expense. Include insurances here as well. If you pay those twice a year, divide the amount of your payment by six to determine the amount you should be setting aside monthly to pay for it. If the payment is due only once each year, divide by 12 to find the monthly amount.
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Place any loan or credit card payments next. Put student loans and car payments at the top of this portion because they usually have payment amounts that stay the same. Follow these by your credit cards. Round up from your latest minimum payment to determine how much to write down for these. If $67 was the last minimum, then put $70 down as the monthly payment amount.
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Finish the list of expenses with the variable items such as gasoline and groceries. While these amounts are never a set total at the checkout, you can still budget a specific amount a month to be spent on them. Because this is an expense, you should over-estimate these amounts as well. Some families can make it on $200 a month for groceries. Yours may need more or less depending on the number of people in the family.
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Notice what is not included in your list. You shouldn't have dinner out, movie tickets, clothing, golf memberships, magazine subscriptions, or anything else of this nature. Items like this are considered a luxury and shouldn't factor into your household budget until you know you can pay for your necessities first.
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Calculate the total of your income and then your expenses. If your budget is working, the income amount will be larger than the expense column. If you do have some money left to work with, consider adding to your monthly savings amount, and then apply this difference to the luxury items you enjoy.
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Determine if the expenses amount is larger than the income. Of so, cut out some of the bills you have listed (perhaps you don't need a home phone and a cell phone, for example).
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Tips & Warnings
If you aren't sure where to apply the excess of income, if you have one, consider building an emergency fund. Set a goal of $1,000, and don't stop saving until you reach your goal. This will give you something to work toward and give you a nice cushion if something unforeseeable happens. If you don't know what you usually spend in a month, or how much your groceries tend to be each week, then start tracking it. Keep a spending log notebook with you and track everything you spend your money on in 1 month's time.
A budget only works when you create a plan and put it into action. If you aren't willing to cut a few of the extraneous items to make the budget work, then you won't be able to keep your head afloat. Try letting go of some items slowly if you must, but do be sure to make cuts when you can see it is something you don't need.
