How to Set a Household Budget

Track your spending for an entire month. Record all your regular bills, including those that you are not currently paying on time or in full. Write down any money you spend even if it is just a dollar here or there. Don’t forget to list the small items such as when you purchase a soda from a vending machine.

Set up categories for all your spending and expenses. Examples of categories include housing costs, transportation expenses, utilities, food, health insurance costs, childcare expenses, if applicable, and personal expenses. You might also want to create subcategories to break down expenses even further. For instance, under the category transportation expenses, you can list car payment, auto insurance, gas and repairs.

List all spending under the appropriate categories. While you want to focus your monthly budget on essential expenses first, you should keep detailed records so that you know where all your money is going. Don’t try to explain away certain indulgences as necessities.

Take a hard look at your expenses and determine if any can be reduced or eliminated. Pay careful attention to the personal expenses category. You don’t really need that $4 coffee every day, and you could live without going to the movies a couple of times a month. If you have a cell phone plan with unlimited minutes, you can probably cut down to a lower plan. The same is true if you are paying more to access hundreds of channels on cable television. Seemingly trivial costs can add up big over time. However, once you see where your money is going, you can decide on what expenses you can cut back on.

Go over all sources of your current income to figure out exactly how much money you have coming in each month. Create a budget that does not exceed that amount. In fact, your monthly budget should leave a little breathing space for unexpected expenses. If you don’t have enough money to cover your bills, you either need to increase your income or cut out expenses that are not necessities. Economist Kathy McNally ,head of financial literacy for the National Foundation for Credit Counseling, warns against letting your money manage you. She underscores how essential it is to develop healthy money management habits early on in adult life.

Set both short-term and long-term financial goals. If you are deep in debt, one of your top goals should be to decrease that debt. Another important goal is to begin putting aside some money into a savings account each month if you are not doing it already. Couples need to have solid goals in order to effectively manage a budget.

Involve your spouse or partner in the budget planning process. Make certain that person is on board with your new spending plans, but be realistic in the goals you set. Remember, it takes commitment on the parts of both partners for a budget to really work. Work out between you what expenses you will pay for with cash. Martin Siesta, a certified financial planner in Maplewood, New Jersey, explains that the use of credit and debit cards makes it too easy to overspend. However, when you have only so much cash at your disposal, you have no choice but to make more practical spending choices.