Household Budgeting 101 – by Phil Wilcox

Keeping a reign on spending in a household can be a real challenge – where does all the money go?! Some kind of budgeting system is the obvious solution, but this can sometimes be hard to manage, particularly if everyone included in the plan doesn’t feel the same way about money!

This is why many people resort to creating a well-defined household budget. The perfect household budget would allow you to define your expenses (such as rent, bills and food costs), as well as put money aside for savings and have some left over for unseen expenditure or fun.

How To Create a Household Budget

There is a lot of advice online about creating household budgets. If you’re a first-timer, this can seem a bit overwhelming! Start out by following these simple steps and you’ll have a robust and efficient budget in no time at all.

Create a spreadsheet

You can use Excel, Open Office, Google Docs or even do it on some grid-lined paper. You’ll need the following columns: Income, Expenses, Budgeted Amount, Actual Amount, Comment.

Income

List all types of income the household receives and put a ‘Total Income’ box at the bottom of the column.

Expenses

Divide all your expenses into categories and list them here. For example, the House category might include rent/mortgage, utilities, homeowners insurance, maintenance.

Budget Amount

Now’s the tricky part. Enter a figure next to each of those listings in the Expenses column. Try and be as specific as possible. When you’re done, put a box at the bottom of the column for ‘Total Budget Amount’.

Actual Amount

Track your spending and put the real numbers of what you’re spending in this column. Again, put a box at the bottom of the column for ‘Total Actual Amount’.

This simple spreadsheet will give you instant access to a few very important pieces of information:

Whether you’re spending more than you earn – compare the Total Income box with the Total Actual Amount box.

Whether you know how much you’re spending – compare the Total Budget Amount box with the Total Actual Amount box.

What you’re spending too much on – look down the column of expenses and highlight any rows that have a much higher actual spend than budget.

Common Pitfalls

Many people start household budgets with the best of intentions but then fail to follow through with the idea for one reason or another. Here are some of the common pitfalls of home budgeting, together with solutions for getting around the problems:

Not keeping track

This has to the number one pitfall of a budget. If you’re not keeping track of what you’re spending, there is no way your budget will work. It’s as simple as that. Whether you’re short of time or just hate sitting down in front of a computer, the best way to beat this problem is to get into a system. Start by getting used to asking for receipts and keeping them in a safe place in your wallet or bag. Now set aside an hour each week to enter those receipts into your budget spreadsheet. Once you get into this habit, you’ll actually start to get a bit addicted to it – it’s a bit like a game!

Spending too much

If your budget reveals that you’re spending more than you earn, it can be a tough pill to swallow. Something from that list of expenses is going to have to go, and it’s probably going to be one of the things you enjoy the most. Instead of just cutting out activities or luxuries, try and think of cheaper alternatives. For example, spending too much on morning coffees? Buy yourself a thermos and make coffee before you leave the house. Or perhaps that gym membership is a bit too pricey? Why not join a cheap local sports club instead and get an exercise mat for your home.

Lying to your budget

Facing up to your finances can be a real challenge, particularly if they’re not in a very good state and you’re sharing them with others. The only way out of this pitfall is to keep your eyes on the prize – it won’t take long for your budget to start looking really ship-shape, as long as you’re always honest with it!

Once your household budget is up and running, it’s important to reward yourself (and anyone else included in the budget). It will be pretty obvious if you’re on track – there won’t be any minuses in those Total figure boxes in your budget spreadsheet. However, it can be tempting to reward yourself with an expensive treat. Instead, with your new saving skills, find an event or activity that you know you can afford – a meal out with some vouchers or a shopping trip with a set amount of cash in your pocket.

Personal finance is one of life’s biggest challenges, but the rewards aren’t just financial. If you’re fully on top of how your earning measures up to your spending, you are ensuring security, peace of mind, and, in the long run, more freedom for you and your household.

About the Author: Phil Wilcox writes on behalf of ClearDebt, who provide advice on personal debt and insolvency.  You can visit the ClearDebt site to find out about getting an IVA or Debt Management Plan.