Step-by-Step Ways to Plan a HouseholdBudget

Following a household budget is one of the best ways for you to figure out where you stand financially and plan for future expenses.  A budget is a plan that helps you live within your means, pay off debt and afford – for real, things like a new car, a vacation or an education.

Putting a household budget into place doesn’t have to be complicated – and once you do have it set up, you can easily make spending decisions – because you will know whether or not you can really afford something – or if you’ll need to wait.

Here’s how to plan your budget, step-by-step:

1.Get Your Goal – Before you begin, decide where you want to go.  What are your financial goals;

  • Get out of debt?
  • Go on vacation
  • Up your retirement savings
  • Buy a house
  • Pay for your childrens’ education.

Write down your family’s financial goals and post them where everyone can see them – you can even cut out pictures and create a “vision board” of your future, so that everyone can visualize achieving them – and find the strength to say no to buying things that aren’t in alignment with your ultimate plan.

2. How Much Do You Earn – Figure out how much money you have – after taxes and all other deductions – you have coming into your household.

  • Count all the income from each family who contributes to the budget
  • Interest from money market or savings accounts
  • Investments
  • Gifts or inheritances
  • Sporadic income

3.Add up Your Expense.  It’s time to figure out the damage – write down all your family’s expenses.  Look through a month’s worth of bills and see how much money is going out.

  • List every bill your family has regardless of how often it’s paid.
  • Group your expenses together like food and eating out
  • Don’t forget the little stuff – snacks, vending machines, coffee – that you pay cash for

4. Include savings. Don’t forget to pay yourself.  If you wait to see what money is left over at the end of the month, you will find a way to spend it instead of saving it.  So in your budget, put an amount for savings  – and make sure the money gets there.  The best way is to have it automatically transferred to a separate account.

5. What’s Left Over. Add together all income sources and then add together all expenses. Subtract the expenses from the income, and this will tell you what financial shape your family is in – or how close to the edge you are.   The larger amount you have left over is money from the household budget that can be used to save for your new vacation, build wealth or buy a new house.  If you have debt, then as much money as possible should be going towards paying it off.

But what if your expenses are greater than your income – what can you do?  You have some decisions to make.  Most likely you’ve been funding your lifestyle with a little help from credit cards.   Are you suddenly, or not so suddenly, painfully aware of how much debt you have?

Well then, it’s time to make some changes:

  • Can you move to a smaller home – and a lower mortgage or rent payment?   Can you sell your house
  • Do you have too many cars?  Can you get away with just one (or two)
  • Are your cars too expensive?  Can you sell your fancy cars, or get rid of your leases and make do with solid second hand cars?
  • Are you eating out too much – and this includes takeout?  Eating out really adds up – and cooking – and planning your weekly menus so that you are tempted to eat out – can cut hundreds of dollars from your monthly household budget.
  • Skip the credit cards and pay cash.  Take out cash at the beginning and middle of the month and section it off into chunks for expenses you usually put on your credit cards – like groceries, gas and clothes.  Only spend cash – and when it’s spent, stop buying – even if this means your making the pantry surprise for dinner!
  • If a lot of your budget is spent servicing credit card debts, pick the one with the lowest balance and scrape every bit of extra money towards paying it off as fast as possible – then get rid of it!  And take the payment you were spending on that one and double on your next biggest balance…and so on and so forth, snowballing your way into bigger and bigger debt repayment.

Creating a sound household budget is really the key to starting to get a handle on out of control spending and credit card debt.  Even if you don’t have a lot of credit card debt, you most likely owe money on something – like you car or your house.  If you properly manage your budget, you can pay off any debt and use the extra money to save or spend more.

Properly planning a budget is not like a diet-  there is nothing that you can’t have – a budget just tells you when you can have it!

So tell us RichMamas – what’s your biggest budgeting pitfalls?  We want to hear from you!