If you’re ready to get your finances under control, this post will show you exactly how to create a household budget.
Whether your goal is to afford a family vacation to Disney or get out of debt completely– the first step is to get your finances in order.
And that usually means creating a household budget if you haven’t already.
How to Create a Household Budget
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Step 1: Audit Your Spending
First, you need to figure out what you’re already spending money on and how much you are spending.
There are a few ways you can figure this out:
- Comb through the past 30 days of your bank records. This is easy to do if you have online banking. Otherwise, you’ll have to wait for your statement to be mailed or go to your bank and ask for a printout (there’s a possibility they may charge for this).
- Grab a good old pencil and piece of paper (or a printable) and track all spending for the next 30 days. Be ruthless and leave nothing out! Even if you spend $4 on a coffee, it gets counted.
- Use a tool like Mint. I love Mint because you can easily sync all your accounts and it will organize all your data into charts for you to analyze.
Your spending habits will most likely fall within the following categories:
- Household bills & utilities: Mortgage, electric, water, car payments & insurance etc.
- Entertainment: Services you have such as internet, cable/satellite, etc.
- Credit card & student loan payments: Everything you are making monthly payments on
- Food: This includes all grocery spending, eating out at fast food restaurants, and even convenience store purchases.
- Fun: Anything “extra” you spend money on. This includes shopping, getting your nails done, subscription boxes, etc. These are your wants vs. needs.
- Gas/transportation: All travel expenses for everyone in your household. Your or your spouse’s commute to work, taking the kids to and from school, etc.
Step 2: Make Adjustments if Needed
You may not be able to change your fixed expenses right now, but there’s a good chance you CAN make adjustments to your other categories.
For example, if you have a cable/satellite service, you might stick to only Netflix and YouTube for a while.
Or if you’re realizing your food spending is through the roof, you might brainstorm some ways to save money on groceries so that you can lower your grocery bill.
So you might brainstorm things like:
- Cook dinner at home at least 5x per week
- Try a meal planning service to help you lower your grocery bill
- Find a new hobby or side hustle to occupy your time other than “shopping for fun”
Something to keep in mind: While it’s great to cut back on certain things when you need to, don’t try to eliminate everything from your “fun” category unless you’re going through a short strict phase. You can still have fun when you’re on a budget. The only difference is you plan + prioritize it over mindless spending!
Step 3: Calculate Your Monthly Income
Once you’ve made all of the adjustments you can or need to make, it’s time to calculate your monthly income.
When calculating your income, make sure you’re going by your NET income, not your GROSS. Only the usable “take home” amount that actually gets deposited into your bank account.
Usually, calculating your monthly income is as simple as multiplying your weekly income by 4.
But what if my family’s income is irregular?
If your family’s income varies, it may be helpful to calculate your monthly income based on your lower earning months.
For example, if sometimes your monthly income is $4,000 and other times it’s $3,500, start out by using the $3,500 as your monthly income for your budget. You can always adjust as you go along.
According to this Dave Ramsey article, you should “base your income on your lowest-paid month from the previous year” if you have irregular income.
Step 4: List Your Monthly Expenses
After you’ve figured out your monthly income, it’s time to list all your expenses and estimated spending. This will include things like your mortgage, utilities, car payment, car insurance, phone bill, internet bill, student loan payments, etc. etc.
Don’t forget to include food, gas, FUN, and unexpected expenses!
This is one reason why step 1 was so important. Not only does it show you the areas that may need improvement, but it gives you ballpark figures to use for creating your household budget.
When you first start budgeting, sometimes your numbers are a little off. If you’re using my printable budget planner, that’s what the “actual” category can help you with.
After the month is over, you can go back and add all of your actual income and expenses and see if you need to make any adjustments.
After you’ve told all your money where to go (created your budget!), now you can use what’s left to set savings goals, debt payoff goals– or both.
If you don’t already have an emergency fund in place, that’s a great place to start.
After that, if your goal is to eliminate debt, I (and a ton of other people!) love Dave Ramsey’s “snowball” method.
And that’s it! Creating a household budget might take a bit of effort at first and a little tweaking for the first couple of months, but I think you’ll find that it’s totally worth it at the end of the day.
Ready to get your finances in order? Snag the 2019 Budgeting Worksheets!