Tips to Set a Household Budget – and Stick to It

Getting Started.

Start by making a list of the money you spend (and what you spend it on), keeping in mind that the number is likely to vary from month to month. If possible, review all your bills from the past year to assist you in adding up the most accurate numbers possible. The more information you can include, the more likely you are to have a realistic picture of your actual expenses.

If you can find your expenses for a full year, add up those totals and divide by 12 to average out your costs. It’s understandable if you don’t have a full year’s worth of expenses. If you only have three months’ worth of bills, for example, you can still average out those costs by adding the totals and dividing by three.

If you don’t keep monthly bills handy, sign on to your online bank account and check your monthly statements. You’ll be able track what you’ve paid for with your debit card, as well as any paper checks you’ve written. Here are some examples of important expenses to track:

• Fixed Payments

  These are costs that stay the same, such as rent or mortgage payments, car payments, student loans and your cable bill. (These costs don’t necessarily have to occur on a monthly basis.)

• Variable Costs

  These are bills you have to pay monthly, but the totals can vary. Examples include gas, electric, water and phone bills, as well credit card payments.

• Ongoing Expenses

  This category includes things like fuel for your car, groceries and entertainment costs like going out to eat, having drinks with friends, watching a movie or traveling.

• Irregular Expenses and Cash

  Expenses here are miscellaneous things such as clothes, gifts for birthdays and holidays, medical co-pays or prescriptions, printer ink or cash you might spend on other non-regular purchases.

Expect the Unexpected.

You should also set aside money each month for unexpected expenses, such as emergency medical bills or car repairs. Though there is no specific number for this, it’s always better to be safe than sorry and budget this category liberally.

Best practices include always having at least an extra $1,000 to $2,000 in the bank, setting aside 10% of your income each month or giving yourself a cushion of at least six times your average monthly expenses. In other words, be prepared.

While banks can loan you money to cover big expenses, remember that you’ll still have to pay that loan back with interest. Attempting to spend only what you can afford is one of the prime considerations when developing a household budget. When you know how much money you have, you’ll know how much you can afford to spend – and what you can save for emergency funds.

Take Time to Review.

After you create a household budget and get in the habit of recording your monthly expenses and income, there is another important step: reviewing your budget and adjusting as necessary.

At the end of each month, check the total amount of your income and expenses. Are they in line with what you expected? Do they fall within your budget? While you can – and should – make budget adjustments each month as necessary, make sure you also take a look at your spending and income at the end of each quarter so you can set new, accurate goals for the coming year.

Ultimately, your goal should always be to spend less than you earn. And whenever possible, use any extra money you have each month to put in some sort of savings account offered by your bank or other trusted financial institution.