12 Things You Must Do When You Create and Manage a Household Budget
Whether it’s a vacation, some urgent car repairs or an upcoming wedding, chances are there’s a specific financial goal that’s prompted your need to create your budget.
While these kind of expenses are likely to ignite a fire under you and finally push you to track your spending, creating a budget is not something you should only consider when you have a specific need.
Building a budget is a smart idea that can set you up for financial success, and it can help you avoid situations where you’re pinching pennies. But creating and managing a budget isn’t always easy; it often seems like it’s a vague concept.
In an effort to simplify the process, here’s our guide to creating and managing a household budget through 12 realistic, achievable steps.
1. Identify Your Goals
Perhaps the most important step of all is figuring out what you want to achieve financially.
Putting aside outside factors like a raise or promotion, think about your goals within your current financial situation. Ask yourself where you want to be financially not just in three months but in several years. Like most people, you’ll probably have both short-term (like saving for a vacation) and one long-term goals (like stop living paycheck to paycheck).
These goals are important because they’ll influence how you budget.
2. Calculate Your Monthly Income
Now, figure out your take-home pay. If you’ve never created a budget before, you may have never really thought of this before since many of us are paid digitally nowadays.
The easiest way to do this is to look at your paystub, which will show how much you’re paid after taxes. Multiple this number by the number of times you’re paid each month. Or use an online calculator to make it easy. If you have a side hustle or you’re a freelancer, you’ll have to estimate. Remember to self-deduct taxes if you’re a freelancer.
3. Build a Spreadsheet
Now that you’ve calculated your monthly income and you have an idea of what you’re working towards, it’s time to map out your budget by creating a spreadsheet. Yes, spreadsheets sound incredibly boring, but they’re also absolutely necessary when it comes to budgeting.
There are a lot of free, easy-to-use budgeting spreadsheet guides, like this one from PearBudget, or apps like Mint. The former option is much more hands on, and the latter will basically do the work for you. Choose the best option that works for you.
4. Consider Your Rent or Mortgage
Likely your biggest expense, your rent or mortgage probably should be the first thing you account for when creating a budget. Unless you plan on moving anytime soon, your rent will be consistent across each month.
Include renter’s or home insurance in this expense. Once you account for this, you can begin to see where you can spend less.
5. Subtract Your Bills and Necessary Expenses
List and add up all of your bills and monthly expenses, like utilities, your car insurance, your phone bill, your Netflix subscription, Amazon Prime, credit card bill and student loan payments.
Don’t forget to include things like your monthly grocery expenses and gas money, and any other recurring payments.
6. Track Your Spending
Mint, as well as My Weekly Budget and mobile bank apps like Simple and Chase, allow you to easily track your discretionary spending (aka where your leftover money goes). These apps let you see your account balance, get an alert every time you spend money.
Some of these apps also automatically categorize your expenses so that you can see where your money is going. If you can’t or don’t want to use these apps, you can go the old school route of keeping a checkbook.
At the end of the month, take a look at all of your expenses. Where are you spending the most money? Where can you cut back?
7. Adjust Your Habits
If you notice that you’re spending too much on going out to eat or that you’re paying for services you never use, now’s the time to make a change.
Whether you decide to cut your weekly spending by $20 or $100, figuring out where you need to adjust your habits is the easiest way to actually lower your spending. Commit to going grocery shopping more regularly and eating out less, for example.
8. Set up Autopay
For the services and bills that aren’t already automatically deducted from your bank account, consider setting up autopay. Utilities, credit card bills and student loan payments are among the things that can be set up to be paid automatically.
Forget about late fees; this makes it so you don’t have to remember which bills are due when.
9. Open a Savings or Retirement Account
You can open a traditional savings account with your bank, but some mobile bank apps like the one from Simple allow you to digitally set aside savings that you can’t touch, without opening an additional account. This makes it easy to transfer money to these savings goals.
If you’re looking to start saving for retirement, ask your employer about a 401(k), or ask your bank about setting up a retirement fund within the same institution.
10. Account for Seasonal and Unexpected Expenses
The holidays are one of the most expensive seasons for most Americans. According to a National Retail Federation survey, Americans spend more than $900 during the holidays.
If you know your family spends big around this time, plan ahead. Make a savings goal so that you only have to contribute as little as $5 or $10 a week. (You can do this within one of the mobile banking apps.)
Likewise, it’s a good idea to set aside money for unexpected expenses, in case, for example, you need a new set of tires or you have a health issue arises.
11. Tell Your Friends and Family
Imagine the following scenario: You’re on a tight budget but your friends keep inviting you to expensive diners and events that require a cover. What do you do?
Most of us are too shy when it comes to talking about money. But since your finances impact your lifestyle, you shouldn’t be afraid to let your friends and family know that you’re on a budget. This can save you not only from having to decline offers but it’s also a chance for you to suggest and plan friend and family gatherings that are low-cost or free.
12. Review Your Budget Monthly
Remember to revisit your budget as necessary, but preferably monthly. This way you can see how your goals are coming along and you can adjust your spending or saving as needed.
You should also change your budget when your situation changes. For example, you can increase your savings goal and indulge in something you may not normally budget for if and when you receive a raise, or you can tighten your budget if you experience a layoff.
While these steps are specific, achievable ways to help you become more financially prepared for the future, they’re also meant to be flexible. You can choose what works for you. The most important thing is to start somewhere.