How to Build a More Realistic Household Budget

Be honest with yourself, and with each other.
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Coming up with a realistic household budget may not seem like a lot of fun, but it can help you sock away money to use for things you really want down the road. It can also give you a sense of financial stability and help you develop a mature relationship with your partner, and with money.

Step 1

Use real numbers -- don't guess. When you sit down to make a household budget, don't just estimate what you spend on entertainment, groceries or new shoes. Keep track of normal expenditures over the course of a month or two, and use the numbers from actual receipts and bank statements to give yourself an accurate accounting of what you normally spend.

Step 2

Get real. You're only fooling yourself and hurting your budget when you list your daily trips to a gourmet coffee shop as a “necessary” $10-per-day household expense. Making your budget more realistic means being super-serious about going through average daily expenses and deciding how necessary they really are.

Step 3

Don't underestimate. Do some research into the real costs that are associated with different expenses. For example, if you get a “free” puppy from the shelter, recognize there's nothing free about Fido at all. You're making a minimum of a 10-year commitment to annual vet bills, feeding, grooming, care and repairing whatever damage the pup does to your home over time. Really consider the true and long-term costs of everything on your budget.

Step 4

Be honest with yourself. The whole point of making a household budget is so you can track how you spend your money and allocate funds to areas that are most important to you. Don't make yourself promises you can't keep, or you’re going to throw your budget out of whack. For example, you might think you can save $200 a month by coloring your own hair, but if you know you're really not likely to do that, don't bother putting it in the budget. Otherwise, you’ll end up with an unrealistic budget spreadsheet that's really not helpful in the money management process.

Step 5

Give yourself some cushion. You never know when you’re going to get rear-ended by a driver with no insurance, or break your leg in a ski accident and be out of work. Build a savings plan into your budget so you can start creating a safety net that’s there when you need it.

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