8 Simple Steps to a Household Budget

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Set and maintain money management guidelines to achieve your goals.

Have you resisted establishing a household budget because it seems too rigid? While you don’t have to track every dime, it’s important to know where your money is going so you can make concrete plans to reach your short- or long-term financial goals.

Start With the Basics
The premise for budgeting is simple. You should be earning more than you spend. To start, write down your take-home pay and expenses for one month in a small notebook that you carry with you. No expense is too small or insignificant; include your morning coffee, parking fees and lunch. Then, start looking at costs that you can avoid or replace with less expensive options.

If you have a partner or multiple bank accounts, tracking income and expenses can be challenging. You’ll need to talk about how you plan to tackle individual debt and pay household expenses before trying to create your budget. An online service like Mint.com can help you pull all of your financial information into one place so you can view the entire situation at a glance.

Build Your Budget
After taking the steps above, the American Institute of Certified Public Accountants recommends using this plan to create a household budget.

  • Add up all of your income from salaries, wages, interest and dividends.
  • Divide expenses into two categories:
    Fixed expenses include housing, food and transportation.
    – Discretionary expenses include hobbies, entertainment and vacations.
  • Identify any “out of pattern” expenses such as car maintenance, home repair, holiday gifts, etc.
  • To make sure you’re not forgetting anything, look through cancelled checks, credit card statements and receipts from the past year.
  • Find budgeting software that fits your needs.
  • Distinguish between expenses that are “wants” and expenses that are “needs” when thinking about future spending.
  • Build rewards into your budget, like buying a pair of designer shoes once a month or eating out once a week.
  • Avoid using credit cards to pay for everyday expenses. It may seem like you’re spending less, but your credit card debt will continue to increase.
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