When you talk with friends, coworkers, or family and hear the word budget- many of us stop listening. It’s something we all feel like we know about, but we don’t REALLY know how to do one.
If you manage your money correctly, a budget won’t shut you down; it will give you financial freedom. Restricting your spending doesn’t mean the world is over. It means you are giving every dollar a home.
Below you will find a complete guide on why you should create a household budget and how to make it. Plus, I have a household budget in Google sheets you can copy and use. The budget will be more manageable for you to fill out once you’ve read through the tips below.
There are many benefits of budgeting, and the best one is to understand your spending habits so you can save and live the life you want later on. When you know what you are doing when it comes to budgeting, you’ll see how easy it is to create one monthly.
Many people make the mistake of giving up before they’ve gotten started.
In this guide, you’ll learn how to create a household budget that will work for your family. If you follow along, you’ll see it’s not as hard as you think. Let’s first take a look at the importance of budgeting and why you should spend the effort.
*Remember this is a guide for YOU to learn how to start a budget- if you are interested in my personal debt-free story, you can read that HERE.
Why Make a Budget?
While common sense might tell you that budgeting is a good idea, you may need a few reasons to help you get motivated. First, budgeting is one of those things that isn’t always fun at first, but you’ll enjoy it when you start to reap the rewards.
When my husband and I started a budget, I was not happy about it. I didn’t like to be told how to spend my hard-earned money.
I ended up finding out that my husband was frequenting Tim Hortons and that $20 a week seemed like a lot per month.
Go in with an honest, open attitude, and you may be surprised at how helpful this budgeting thing really is. Before you get started with creating a budget, you need to focus on your why.
Do you get a pit in your stomach every time you see the stack of bills sitting in the mailbox? Are you constantly wondering how you’re going to make it to the next paycheck?
Peace of mind is one of the tremendous benefits of budgeting. Instead of wondering where your next dollar is going to come from, you can relax. When you’re living within your means, and you put a little money aside each time you get paid, it doesn’t take long to be able to breathe easier.
Having money in savings can not only give you peace of mind, but it can genuinely protect you if you get in a situation when money gets even tighter. For example, when a layoff comes to someone in your family, having money in savings will protect you from losing everything.
Making a budget also helps you to prepare ahead of time for expenditures. Instead of just spending without thinking, having a budget gives you a reference for making decisions about your finances.
If you’re like most people, you just spend money if you have it instead of thoughtfully considering each purchase. Budgeting helps you to understand the difference between the things you need and the things you want.
Unless you have unlimited funds (and that’s probably not the case since you’re reading this), creating and living by a budget makes sense. If you’re in much debt, it makes sense to stick to a budget and try to get out of it.
Grab a FREE Basic Budgeting Printable Bundle BELOW
The Debt Danger
Being in debt is one of the most challenging situations to escape from. Debt can make you feel enslaved to a corporation that doesn’t care about whether you have children to feed, a roof over your head, or a job.
It’s easy to get into debt – even if you’re making great money. People who make a lot of money are often in debt up to their eyeballs to keep up with other affluent friends. But being in debt means you don’t really “own” anything and puts you in danger of major financial woes.
Don’t fall into the money misconception that items in your home or your name that you are paying off each month- aren’t really yours.
Imagine making a six-figure salary and charging lavish items on credit cards. While you might be able to keep up with the payments as long as you have a job, what happens if you lose it? You might be thinking that it won’t happen to you, but it can happen to anyone.
I lost my job while I was on maternity leave with our first daughter. It was a wake-up call that pushed us into our debt payoff journey.
Before you know it, you’re not able to pay credit cards, car notes, or even your mortgage. It might not have seemed unreasonable to get into debt when your income was good, but it can be financially tragic when you lose your income.
When you don’t buy items you can’t afford, you’re protected from the danger of losing everything to debt. There’s strength and confidence in being able to pay cash for your purchases. Ultimately, that will be your goal in creating a household budget.
Common Budgeting Traps
You may have tried to budget before but not have had success. That could be because you haven’t gone about it the right way for you. Some of the common budgeting mistakes people make are:
· Not making a budget that’s realistic for your family
· Making a budget, but not committing to it
· Not communicating with your spouse and/or children about the budget
· Disagreeing on what expenses are necessary
· Misidentifying needs versus wants
· Being inconsistent with financial habits
While budgeting can be challenging, it’s not impossible. When you have a budget, you need to be realistic about your own family and communicate. In this guide, you’ll learn how to do that – it doesn’t always come naturally to people.
You’ll also need to be committed to following through with your budget. Setting some goals can help you motivate and see your success. Don’t worry – we’ll cover all of that here as you continue reading.
Money Is Emotional
While talking about money seems to be pretty objective, and about dollars and cents, in actuality, it’s pretty emotional. You may have many feelings surrounding your financial situation. Some of those are good, and some can be very bad.
It’s essential to separate your value as a human being from your financial worth. Everyone makes mistakes and has complex challenges. If yours happen to be economical, you can sometimes feel desperate, humiliated, and embarrassed.
You’ll need to try to let go of those feelings so that you can look at things more objectively. It will feel excellent to get in control of your funds. And if you’ve made financial mistakes or are experiencing hard times, you should feel proud that you’re ready to face things.
For more tips on how to stop emotional spending, read this. ( I’m a BIG emotional spender myself)
Getting on the Same Page with Your Spouse
Finances can be challenging for couples to discuss and manage. If you’re in a relationship where you share the same household or if you’re planning to shortly, you need to learn to communicate about money.
Money issues can be a significant challenge for any couple. Set some guidelines about being open when discussing money. You’ll also need to make sure not to make things personal. You may have very different ideas on how to spend money – in fact, you probably do.
Try not to make personal attacks when you disagree about money. If you find that you’re getting in a heated discussion, it might be best to take a break and cool off before continuing. Working through financial issues is challenging but necessary if you’re going to have good financial health.
You may want to look for some resources to help you communicate about money as a couple. A financial counselor can be beneficial if you need an objective ear. You may also want to look at books designed to help couples get on the same page about money.
Step 1: Know Where You Are
The first thing you need to do before you even think about creating a new budget is determining how you spend your money now. So, the first step is just to keep track of what you’re spending. This is going to take cooperation between all the family members.
For at least one month, you need to write down every penny that you spend. You also need to keep track of how much money is coming in. To do this, you’ll need to be as specific as possible to get an accurate idea of your finances.
For example, it’s not enough to write down that you spent $53.45 at the grocery store. You need to hang on to that receipt so that you know what you bought at the store. This will be important later when you’re looking at where you can trim your expenses.
We kept ALL our receipts when we started our budget. I didn’t want to mess around with apps or paying for anything extra. Depending on your personality, this may not be your favorite option.
If you want an app to track your spending for you, you will need to pay for it monthly. Two of my favorite budgeting apps that I’ve played around with in the past and love are EveryDollar ( Dave Ramsey) and YNAB. The EveryDollar app does have a free version.
The cheapest way to keep track is to get a spiral notebook and a large envelope. For the next month, you’ll write down any money that comes in on the first two pages. Income doesn’t take two whole pages for most people, but you might want to leave some extra space.
In most households, paychecks come at regular intervals, and at most, you get paid once a week. However, there are professions where the money comes in sporadically and even daily. So make sure you leave room for all the income you receive.
On the following pages, you’ll write down any money you spend. This includes purchases made on credit cards and debit cards, as well as cash. So if you spend one penny, it needs to be written down in a notebook.
I use apps that give me cashback for the receipts and items I purchase- like Ibotta, Receipt Hog, and Fetch Rewards so keeping my receipts has become second nature. First, I’ll scan the receipts and then staple them together to file for our monthly budget.
You might want to keep a smaller notebook in your purse or car to help you keep track of spending when you’re on the go. Then come home and record it in the central spiral that the entire family is using.
For every purchase you make, you need to ask for a receipt. Then, place all of the receipts in the envelope to reference later. This might be difficult to remember, but it’s the most critical step.
By the end of the month, this will come more naturally. And you’ll need to continue this habit for a while so that you can get control over what you’re spending and be aware. Awareness is the first step.
Believe it or not, most people have no idea how much money they have coming in and how much is going out. You can’t have a realistic budget if you don’t know what’s happening with your money.
Step 2: A Critical Look at Your Finances
You’ve been tracking your spending for a month. Now it’s time to examine it closely. This can take a few hours, so make sure you set aside a reasonable amount of time to do this. If you have a spouse, this process is best done together.
First, you need to go through your income and total up what you brought in. This is a number that you need to pay close attention to. You’ll want to make sure that you stay within this number with your expenditures from now on.
Next, you need to begin categorizing the money that’s going out. There are several categories that expenses generally fall into. For example:
· Debt Payments
· Expenses for school
· Expenses for work
· Medical expenses (prescriptions, co-payments, etc.)
· Food – groceries
· Food – eating out (this includes those trips to the coffee shop)
· Other – depending on your family, there could be some extra categories
Getting your spending divided into categories will help you make decisions about necessary expenses versus those that can be cut out. Now that you have the big picture, it’s time to make some tough decisions.
Step 3: Trim the Fat or Increase Income
When looking at your budget, your expenses may outweigh your income; this is especially true if you have any debt payments. As a result, you’ll need to either trim costs or bring in more money. Which you choose will depend a lot upon your expenses.
Now it’s time to make the hard choices. You’ll need to get out those receipts now. Go through every item you’ve purchased and decide what purchases you required and what purchases were luxury items.
It can be challenging to be honest about your expenses, but it’s time to take a hard look at it and make sure you’re realistic about needs versus wants. Take a look at some examples of things you could probably trim:
· Fast Food
· Eating out
· Salon services – hair, manicures, pedicures, etc.
· Expensive café drinks
· Entertainment- movies, shows, etc.
· Clothing purchases
This doesn’t mean that you have to throw out the baby with the bathwater. You don’t have to eliminate every single luxury item. However, if you’re spending more money than you make or charging items on credit cards, you need to trim those expenses.
For example, if you eat several times a week, try to eliminate one of those trips. Or limit yourself to eating out once a week. If you get your nails done every week, try alternating weeks.
If you try to eliminate all the luxuries from your life, you may find that you end up going on a spending binge later. So instead, try to be realistic about what you can live with if you have some wiggle room in your budget.
You need to think about a few things when you’re trying to reconcile your income versus expenses. Here’s how to know if you need to make changes or if you’re doing okay. Most people have an area where they can improve.
Are you on Tiktok? Be sure to follow me over there for more tips to save and have fun!
If You Have to Charge It, You Can’t Afford It.
Your first goal should be to stop charging on credit cards. If you can’t afford something, you need to try to eliminate that expense from your life. It won’t happen overnight, but over time you need to get those expenses cut back.
Credit cards can be a trap. You see something you want, but you don’t have money in the bank to buy it. So you reach for that little card that has some room on it and has the instant gratification that you crave.
It feels great – until the bill arrives in the mail or your inbox. And while it seemed like a good idea at the time, credit card debt is one of the worst things that can happen to your finances. Unless you pay off your balance each month, you’re going to be paying a lot more than retail for the items you charge.
It’s easy to justify credit card debt, but try not to. Remember that if you can’t afford an item with cash or what’s in your bank account, you can’t afford it, period. So resist the urge to charge items.
Instead of increasing your debt, you need to be working on getting beyond paying the minimum payments on your credit cards. Paying only the minimums can keep you in debt forever – and the interest will often be more than the original purchase.
For tips on how to help STOP emotional spending read this article here.
Ability to Save
Even if your expenses don’t outweigh your income, you need to look at how much you’re able to put into savings. You should be saving at least ten percent of your income, and if you can’t do that, it’s time to cut expenses. Here is a list of things you can cut out from your budget.
If you’re already saving that amount, you might want to increase the percentage. The more money you have to save and invest, the more secure you’ll feel now and in the future. As you’re looking at where to trim expenses, focus on putting more in savings.
Remember to use a saving account you can’t easily access. This way, you won’t be tempted to pull from it.
Have you heard of Acorns? This may be an option you choose when it comes to automatic savings. Acorns will round up your change and put that money into a savings account. The drawback- it does cost $3 a month to use, but depending on how much you want to save without thinking about it, this cost could be worth it.
For more tips to help your savings game check out this article: 7 Tips to Improve Your Savings Game
Still Stretched Too Thin
You may be cutting all the extras and still can’t make ends meet. This is especially true if you’ve recently undergone a significant life change such as a layoff or divorce. Understandably, you may be feeling desperate at this point.
If this is happening in our lives, you may have to take on a second job to increase your income. You may also want to consider finding a way to get some extra education and training to help you grow your future revenue.
Here are a few other ways you might be able to make your dollars stretch further or bring in more income:
· Get a roommate or rent out a room in your home
· Take a second job
· Look for financial aid for training
· Talk with family members about temporary help
· Save on groceries by using coupons and shopping sales
· Take advantage of yard sales and thrift stores for needed items
· Sell items you own that may have value
· Downsize your living situation
· Think about your talents and skills and decide if you can charge for them – for example, sewing and mending clothes, art, photography, handyman services, computer repair, yard work, and cleaning
It’s important to remember that it won’t last forever while the economy is terrible right now. Making sacrifices now will allow you to have a more remarkable ability to manage your finances when things start to improve.
Step 4: Realize What You Should be Spending
When it comes down to it, you may not know what you should be spending on items. It’s hard to make a realistic budget if you don’t have a good knowledge of how your money ought to be distributed ideally.
Here’s a breakdown of where your money should go:
Debt Payments 10%
These are maximums. So if you spend less than 30% on housing, you can take that money and put it toward debt payments or increase your savings. Look at the percentages of where you spend your money. Do they match up? If not, it’s time to reallocate your funds.
Make a plan using your income and expenses to match up a little more closely to this distribution. Then make a chart of how much should be spent each month in each category. You should post this prominently in your home.
This will be your new household budget. You’ll also want to post how much debt you have and make a plan to pay it off as soon as possible. In the next section, you’ll read ideas about how you can do that.
Step 5: Make a Plan to Pay Your Debt
If you don’t have debt, you can skip this section. However, most readers are going to find that this is an essential part of the plan. If you have credit card debt, student loans, car payments, or any other type of loan payment, it’s time to chip away at the debt and become free.
Get out all of your credit card bills and look at your payments. Put them in order of smallest total balance to largest balance. Then look at the minimum payments for each. Rather than trying to pay more than the minimum on each card, focus on paying them off one at a time.
Start with the one that has the smallest balance. For all the other cards, only pay the minimum payment (and stop using them!). Then, for the card with the smallest balance, take any extra income you can and put it toward that card until it’s paid off.
Once you pay off one, move on to the next lowest balance. When you pay off that one, go on to the next one. Continue doing this until you pay all credit card debt off. It may seem like a process that’s difficult and never-ending, but once you pay off that first card, you’ll feel a little extra motivation.
Step 6: Continue to Track Spending
You know what you have coming in, going out, and you have a plan to pay off debt. Now you need to continue to track your spending. This will help you to stay accountable for sticking with your plan.
Many people make a budget but then stop paying as close attention to spending and earnings. To have success, you’ll need to continue writing down every penny so that you don’t get out of control with your spending.
Writing down your purchases will help you to be more mindful of them. In addition, it will give you a moment to think about whether or not a purchase is essential or if it’s within your budget plan.
Step 7: Plan for Your Tomorrow
It’s hard to plan for your future until you’re out of debt. Once your credit cards and other debts are paid off, you need to focus your efforts on saving for the future. This doesn’t include your mortgage- although it’s a good idea to put more and more money toward it to pay it off early.
At this point, you’ll want to increase the amount of money you’re putting in savings and begin to think about investing in your retirement and education funds for your children. For this step, you’ll want to contact a financial planner.
A financial planner can help you determine what investments are suitable for you and your family. Don’t just go with the first person you meet. Meet with a few financial planners to compare what they offer for you. Then, with the information in hand, you can choose one that seems the best for you.
A book I highly recommend for saving for your future is “The Smart Woman’s Guide to Planning For Retirement- Mary Hunt”
If you are looking for other books I recommend for money management, check out the list in my Tiktok below.
Including Kids in Your Budget Planning
The earlier your children begin learning about money, the better. The habits they set up now are the ones they’ll carry throughout their lifetime. So it’s essential to include them in this process.
You may want to sit down with everything first on your own and even make a poster of how much is coming in and going out before you share the process with your kids. But once you understand the big picture, you can talk to them about what you need to do.
Let your kids help you to eliminate unnecessary expenditures – no doubt some of those purchases are for them. However, when it comes to buying toys and extra things that they want, it’s a good idea to start an allowance to begin understanding how to earn money and budget for themselves.
A good rule of thumb is for allowance to be one dollar for every year of a child’s life. You can distribute it weekly or every two weeks. Your child needs to learn about money through chores.
They don’t have to be significant chores, and they should be age-appropriate. Then help them to set up a container for savings and spending. You may even want to have a jar for donations to teach children about sharing what they have early.
As children, they can save more than you probably can as an adult. So you might want to start with saving 20% of their income. Then, make sure to help them figure out how much and place it into the containers.
Then when they want to purchase something, you can help them figure out how long it will take to earn money. Then, when they have a decent amount of cash in their savings jar, you can take them to open up a bank account so that they can become familiar with the banking system.
Of course, there is an app for this too! Greenlight is all about financial education for kids. They help them learn about money management through a safe, secure app where parents manage every dollar and see every transaction. Right now, when you sign up through my link here, you will get a 30-day FREE trial. You do need $10 to put into the account to start. This is an excellent way for older kids to have a little more responsibility while you can monitor spending.
Discussing finances openly with your children will also help them understand why they can’t always have what they want. For example, instead of saying, “We’re too poor for that,” you can explain that the purchase isn’t in the family budget.
Bring the family budget out where everyone can see it can help kids be part of the financial team. For example, if you want to take a family vacation, it can be written on the poster, and the kids can be taught that they have to give up some wants to save for something even better.
Many people try to keep financial information away from their children for fear that they will then worry. But children need to learn about finances early so that when they become adults, it’s not a shock to manage their own money.
You’ll be setting your child up for future financial success. Many people make financial mistakes because they aren’t educated about money, or they have spending habits that began as a child. In addition, people have emotions surrounding money that began in their childhood and continue into adulthood. Educating your children now is an excellent gift for them.