How to Do a Household Budget
Keeping track of where your money goes can be an overwhelming prospect, but it's a necessary one if you want to make sure you're being fiscally responsible and laying a solid foundation for your future. A household budget is a good way to understand and solidify your financial footing. It can help you take control of your expenses before they get out of hand or make sure you're saving enough to reach all the financial goals you've set for yourself.
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Things You'll Need
- Spreadsheet program or pencil, paper and calculator
- Monthly income statements
- List of monthly expenses
- List of annual expenses
- List of savings goals
Instructions
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1
Keep an expense diary for a month if you're not sure of all of your monthly expenses. Be sure to write down everything you spend, including purchases that seem small, such as coffee or magazines.
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2
Divide your monthly expenses into two categories: necessities and luxuries. Necessities should include such items as your mortgage or rent payment, utilities, gas, groceries, insurance, car payments, child care costs and minimum credit card payments. If amounts vary, such as with utilities, use an average. Items on the luxuries list might include cable TV, entertainment, dining out, coffee or magazines. If you need Internet service or your cell phone for work purposes, these would be necessary expenses.
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3
Add all the amounts on your monthly income statements to get your total monthly income.
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4
Total the costs of all the items on the necessities list and subtract this amount from your total monthly income.
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5
Divide your annual expenses by 12 to see how much you should allocate for these items each month. Annual expenses can include car registration renewal and car insurance, and property taxes or homeowners insurance if those aren't included in your monthly mortgage payment.
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6
Total the monthly cost of your annual expenses and subtract this from the amount that remains from Step 4.
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7
Divide your annual savings goals--such as contributions to an IRA, an emergency fund or a vacation fund or additional credit card payments--by 12 to determine how much should be set aside for them each month.
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8
Total the monthly targets for your annual savings goals and subtract this from the amount that remains from Step 6. The remaining balance is your discretionary income.
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9
Total the costs of all the items on the luxuries list and subtract that amount from your discretionary income. If you end up with a negative amount, choose which ones you can eliminate so that you're not spending more than you're making. If you have a positive amount, this money should be applied to credit card debt or to your savings goals.
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Tips & Warnings
If you have significant credit card debt, consider eliminating more discretionary items to pay it off faster. Many worksheets are available online to help you establish a budget (see Resources).
