How To Create Your Household Budget

When you hear the word budget what comes to mind? Do you start to think about all the things you think you won’t be able to do or buy? Do you feel like you’re being constrained?

If you are, don't feel bad about it because it’s common for people to feel that way because that’s typically how budgets are positioned. As something is keeping you from having fun with your money. But, that’s not what a budget is.

woman holding pencil and using calculator while making household budget.
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A budget is actually the opposite as it gives you the freedom to have more fun with your money because it’s a spending guide. A budget helps you determine where your income should go and be spent each month.

I’ve had a budget for most of my adult life minus a few years where I thought I didn’t need one anymore and those are the years where I saved less and slowed down my financial progress some.

Now I’m back to budgeting and have been able to greatly increase my savings and investing because I know how much money I have coming in and out each month. Plus, I don’t feel like I’ve had to hold back on purchases I wanted to make.

Benefits of having a budget

Yes, budgeting isn’t fun for everyone but it can be helpful for most if not everyone because
  • It helps you to see how much spend each month
  • It can help you see how much you have coming in each month (surprisingly a lot of people don’t know how much their take-home pay is)
  • It can help you pay off your debt quicker
  • It helps with achieving your short-term and long-term financial goals

Different ways to budget

Did you know there are several different budgeting methods out there? I know I didn’t. When I had a household budget in the past I would just divvy up my paycheck each month and assign what I felt comfortable spending in specific areas and what I wanted to save each month. I would have some left over each month, especially as I progressed my career and made more, that I would just carry over to the next month if I ended up not needing it.

What I didn’t realize is that I should have been doing something with those leftover dollars instead of carrying them over to the next month. The most common budgeting methods do have you do that.

Traditional budget

This is the budgeting method I used to use. This is where you list out your income, list anticipated expenses, and note the leftover. The leftover can be carried over to the next month or assigned towards a savings goal, debt repayment, or spent.

50/30/20 or proportional budget

This is a more simplified budgeting method because all you do is break expenses into three categories and assign a percentage to them
  • Necessary expenses, typically at 50%
  • Discretionary expenses, typically at 30%
  • Savings and debt payments, typically at 20%

Pay yourself first budget

With this method, you take your income and set aside a portion of it for savings and then you spend the rest however you want.

Zero-based budget

This is kinda similar to the traditional method with one simple difference, there is no leftover. A zero-based budget is taking every dollar of your income next month and assigning it to different expenses and savings goals so it equals zero. With this method, there shouldn’t be left over, or much of anything, at the end of the month.

I opted to use a zero-based budget. The majority of my income is stable and doesn’t shift month-to-month as well as my expenses which makes doing a zero-based budget easy.

I like that a zero-based budget makes me think through how each and every dollar that comes into my bank account is used, especially in the areas of saving and paying extra towards my mortgage.

How to get started with a budget

While there are multiple methods you can use to budget, getting started with any type of budget requires the same type of prep

Find or calculate your monthly income

This is all money coming in each month no matter the source. Income is your regular paycheck, money made from side hustles, investments, etc.

For your paycheck, you can either use your before-tax or after-tax income. If you use your before-tax income you’ll need to account for taxes as part of your expenses. Some people include their automatic deductions and subtract them as part of the budget. I personally use my income after-tax and deductions.

If your income is less consistent you can take an average of what you typically earn in a year and use that.

Gather up your expenses

You’ll want to know what all your expenses are and list them out in your budget. It’s good to start with the expenses you know you have to pay each month such as groceries, mortgage or rent, utilities, medications, child care, and debt repayments.

After that you can start listing expenses that aren’t as important like clothing, eating out, or salon visits.

Set your personal goals

I’ve found that budgeting works best when you have a set goal in mind for your finances. That could be saving more money, retiring early, making a large purchase, or evening having more money to give to charity or donate.

Now that you have all of your info ready, it’s time to pick one of the budgeting methods mentioned and create your budget.

How to stick to a budget

Creating a budget is only half of the process. The rest of it is tracking the budget. And that gets easier with time so don’t be discouraged if you find that you’ve veered away from your budget and overspent in some areas and underspent in others. You have to walk before you run.

The key to staying on budget is to track all, and I mean all, of your transactions. When you know what’s coming in and what’s going out throughout the month
  • You can quickly adapt and make adjustments to your budget
  • You feel more confident about your money because you’re informed
  • You learn more about how to spend money and can adjust your spending habit

For me, the easiest way to track my budget is to use a budgeting app. I use the EveryDollar App from Ramsey Solutions but there are so many others out there like Mint and Personal Capital which I’ve used in the past. I share more budgeting app options in my post 5 Great Apps For Managing Your Budget.

I look at my budget at least a couple of times a week to see what has been spent in each of my expense categories and how much is left to spend. I also take this time to make adjustments. Some months I know I’ll be spending more on groceries because I want to take advantage of some great sales and stock up. Or I may be driving less that month and know I won’t be spending my full gas budget.


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