Simple Methods to Create a Household Budget

Few things in life are as painful as creating a budget. However, a household budget is important because it serves as a written contract between you and your money. There are many ways to go about creating a budget, but I have found the easiest method is to simply track your expenses for a couple months, assign categories to those expenses and then begin to live within assigned amounts or each category. Seems easy enough, doesn't it?

Tracking Expenditures
To create some baseline figures gather up all the receipts and statements you can find for the last three or four months. Things like utility payments should be fairly easy to average, but budget categories such as "Food" may be spread out over several forms of payments (credit cards, cash, check card, etc.). If you don't have any previous records to work from begin by picking up an inexpensive notebook. Record in the notebook every expenditure leaving your bank account and assign it a category (food, clothing, etc.). At the end of the month add up expenses in each category and use that as your baseline figure. If one category was unusually high (back to school clothes shopping, for example) then adjust accordingly.

Time Period
Most budgets are designed to cover a monthly period. That doesn't mean you necessarily have to track a month's worth of expenses. My family does better tracking each paycheck (biweekly). We estimate the paycheck amount and then list all the expenditures occurring within the two-week period that check covers. If you have kids, or many unexpected expenses throughout the month, I recommend a biweekly budget. It is easier to predict expenses coming up in two weeks than four.

Creating Categories
I will list some standard budget categories, but should really consider personalizing your budget with categories that make sense to you. Most people group their expenses in to categories such as savings, clothing, debt payments, medical, household, automotive, entertainment, food, utilities. Notice categories such as "household" are broad and can be further broken down to subcategories such as paper products, toiletries, cleaning suppliers, etc if you desire.

Zero-Based
Your budget should be a zero-based budget. This means your total income minus your total expenditures should equal zero. If you have disposable income left over after paying expenditures then consider other savings and investment opportunities to spend your entire income on paper. If you don't take this step the remaining money will mostly be spent away on frivolous purchases throughout the month.

Budget Adjustments
Remember, a written budget agreed to by the adult members of the household is a written contract. Any deviations or adjustments to the budget should be discussed ahead of time. Changes to the budget should be a rare exception. If you find yourself constantly needing to move money around you need to reevaluate the money you are allocating to each category.