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How to Create a Simple Household Budget

 
By Martin Harris in Personal Finance
March 22nd, 2011

Creating a budget for your household is easy to do and it may be one of the most important aspects of managing your personal finances.

There’s no doubt about it - a budget is one of the easiest yet most effective ways to gain control over your household finances and live a life free of financial worries. While many families are serious about or in dire need of budgeting, sometimes the concept of how a budget is drawn and followed is a concept that requires a little bit of help.

Here are a few simple steps for planning a budget for yourself or your family:

1.) Collect all of your necessary financial information. This will include all credit card statements, bank statements and receipts for purchases. Anything that documents your expenses over the last three months should to be collected if possible. What will you do with this information? You will to use it to categorize your household and personal expenses. This way you will know at a glance how much you spend on your home, your car, your food, healthcare, entertainment and so on. At this point you are not tracking your expenses, you’re simply deriving expense categories for your budget. If it makes it simpler, begin by drafting the categories you think the majority of your expenses will fall into.

2.) Next, you will need to gather your income statements or profit and loss sheets to determine how much money you really have to budget with. You can use either your net or gross income as your determining number, either way, just be consistent. Also, if you choose to use your gross income, make sure to account for your taxes on your list of expenses.

3.) With the same documents used to create your budget expense categories, now examine how much you might spend per month for each category. It is recommended that you write this number down. It may be an eye-opening exercise, but it will also help you predict how much you will spend in the future. You want your budget to be a realistic reflection of your spending habits, not a financial diet.

4.) You will need a method of analyzing your budget. This could be a simple spreadsheet where your columns are a list of your categories, your weekly or monthly available spending amount, how much you actually spend and the difference between the two numbers. Your rows will be the income and expense categories you’ve already established.

5.) Create a budget, keeping in mind that you will want a budget category devoted to savings goals too. Once your budget is created, spend a month or two following it. Keep your budget close at hand so you can track your finances closely. Assess your spending on a weekly or monthly basis. Re-evaluate your budget if you need to. Your budget is not set in stone and some of your expenses are variable, meaning you control how much you spend on them. For example, entertainment is variable and your mortgage is fixed.

A budget is nothing more than a spending plan. It isn’t a financial diet. It is a tool to control your money and be knowledgeable and smart about where it goes. It’s your money after all, and isn’t it great to have the upper hand?





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