How to Write a Household Budget

It seems that everyone is looking to stretch the monthly budget a little bit further.  If you are like most people, this is difficult to do when you aren’t sure where all the money goes each month.  The best way to get those answers and find ways to save money is to write a budget EVERY MONTH.  This will take a little time to get right the first time, but the financial rewards will be worth it.

   1.  You don’t need an expensive computer program to maintain a monthly budget.  If the computerized method works for you, great.  Otherwise, grab a piece of paper and a pencil so you can get started.

   2. Gather your checkbook, credit card and bank statement, the pile of bills by your phone, etc.

   3.  Write down your actual net monthly income from all sources including all household paychecks, dividends, child support, alimony, tips, etc.

   4.  Start a list of your fixed monthly expenses.  These are the bills you pay regularly, usually every month.  Examples include:

Rent or mortgage payments

Taxes (not property taxes if they are combined into your house payment)

Insurance (Medical, car, life, if not deducted from your check)

Utilities (cable, phone, cell phone, water/sewer, power, natural gas, garbage, internet)

Newspaper

Club memberships

Kids’ activities

School tuition

Prescriptions if paid monthly

Other debts such as:

RV loan

Car loans

Boat loan

Credit cards

School loans

To figure a dollar amount for expenses that fluctuate from month to month such as heating bills, review the last year of bills or call your utility company.  You may want to add 5% for this years’ budget as costs increase.

   5.  Create a list of variable expenses.  These include everything you spend money on besides the fixed expenses listed in #4.  To get an idea of the amounts in each category, review all checkbook and credit card entries for the last six months.  If you mostly spend cash, you have two choices.  1) Stop using cash and use your debit card.  Record expenditures immediately.  2)  Use the envelope method in which you label several envelopes with titles such as groceries, gas, coffee, fun money, etc.  After you decide on a specific amount for your budget, designate a sum of money to each envelope.  Use the cash for its specific purpose.  When it is gone, you are over budget.

Examples of variable expenses include:

Clothes/shoes/dry cleaning

Hair products and services

Personal items such as bathroom supplies, make-up, etc.

Household items such as laundry soap and vacuum bags

Gas

Entertainment expenses including movie rentals, outings to movies, theater, or zoo, alcohol purchases, books, magazines, camping fees, vacation rentals, etc.

Gifts

Savings

Charity/donations

6.   Review the last six months of expenditures through receipts, checkbooks, bank statements and credit card statement.  This will allow you to get an idea of how much money you are spending in each category.

   7.  The goal is to make the fixed plus variable expenses equal the total income.  If your expenses are greater than your income, you need to make more money, or make more cutbacks.  If you have more income than you have divided into spending categories,(few of us ever see this) you must enter the left over amount either into “savings” or divided among other categories.

   8.  Congratulations! It wasn’t fun, but you’ve completed a budget.  The next step is to keep a meticulous record of every dollar you spend.  Save your receipts and enter the amounts into each category daily or weekly.  The more often you record the numbers, the more aware you will be of where your money is going.  If you weren’t able to see places to make cutbacks after creating the budget, you will better see them after a month of daily recording.

   9.  Make a new budget every month, adjusting for big events such as birthdays, Christmas, vacations, or insurance premiums.