Your household budget doesn’t have to be complicated. A functional household budget simply accounts for money that comes in and money that goes out. That can be as simple as dedicating 50 percent of your money toward needs, 30 percent toward wants, and 20 percent for savings or debt repayment.
Making a budget – and sticking to it – is one way to make sure you can handle emergency expenses, like small repairs or vet bills. That’s super important considering most Americans can’t afford a $400 emergency expense.
Using a worksheet is a good start. It helps you to identify how you’re spending your money and ways you can reallocate your money. A good budget worksheet helps identify what your needs are and what your wants are. By identifying what is a necessity and what isn’t, you can start to access how your discretionary spending affects your monthly budget to make adjustments.
Your household budget worksheet
We showed you how to make a budget after buying a house, but now let’s take it one step further and build that budget.
Step 1: Be prepared to confront your finances
The first step to making a reasonable budget is to take a cold, hard look at your finances. If you’re like many folks, you may have been avoiding a budget because it can be hard to confront how much you spend versus how much you make.
The only way to trim the fat off your budget is to take an honest assessment of what you spend money on. Chances are you can’t change how much money you make, so you’ll need to make spending adjustments.
When you bought your home, your lender probably calculated your debt-to-income ratio (DTI). This divides your monthly debt payments by your monthly income. As a general rule, your housing DTI (which includes your monthly mortgage payment, property taxes, homeowners insurance, and HOA dues) should be 28 percent of your income or less. Your total DTI (the portion of your income needed to cover all of your monthly debts, plus mortgage payments and housing expenses) shouldn’t be more than 36 percent.
This can help you understand your high-level budget, but it doesn’t tell you much about your discretionary spending. This is where the worksheet will help.
Step 2: Gather the data
Now is not the time to guesstimate. Before you sit down with this household budget worksheet, grab your recent paystubs, bank statements, credit card statements, and utility bills. Some things to keep in mind when sitting down with your finances:
- Don’t count overtime pay unless it’s regular and consistent.
- Look at bank and credit card statements for discretionary spending on things like coffee, eating out, and clothing.
- Add up ATM withdrawals for things you spend cash on.
- Have several months of utility bills to get the average cost. Winter and summer utility bills can vary drastically.
Step 3: Calculate your total monthly income
Before you can decide how much to spend every month, you need to know how much you make. Start with your take-home pay, and then include other income sources: consistent side hustles, alimony or child support, or any other regular fixed income that you get. Tally them up to get your total income.
Your earnings should dictate your budget, but if you’re like more than half Americans, you may be spending more than you earn every month. Again, that’s where this worksheet can help.
Step 4: Add up your necessary living expenses
Your fixed monthly expenses are necessities like your mortgage, property taxes, car payments, and insurance. Your variable expenses are necessities that may change in price from month to month, like your electric bill, gas expenses, and groceries.
If you come across a category that doesn’t apply, put a zero in the field.
|Total Monthly Living Expenses
Step 5: Take stock of your discretionary spending
Discretionary spending is the money you spend on things that you don’t need but that make life more enjoyable, like recreation and entertainment. It could be conveniences like dining out or grabbing a Starbucks coffee on the way to work. You may need to visit your bank and credit card statements to get an accurate reflection of what your leisure spending looks like.
If you use cash, make your best estimate at first. Track your spending for about a week to get an impression of where your cash spend goes.
If you’re trying to rein in your expenses, monitor your discretionary spending.
|Home Entertainment Subscriptions
|Dining Out / Takeout
|Total Monthly Discretionary Expenses
Step 6: Total your savings and debt repayment
Your savings take the biggest hit when discretionary spending isn’t under control. Ideally, 20 percent of your income should go toward savings. As you build your budget and monitor your spending, make adjustments to your discretionary spending so you can save more or pay off debts.
|Savings and debt repayment
|Credit Card Payments
|Student Loan Payments
|Total Monthly Expenses
Step 7: Set a monthly reminder to review and adjust
Budgets are rarely a set-and-forget project. They need attention, review, and tweaks to make sure they work for you and your household.
Set a calendar reminder in your phone to review your budget at the end of each month. Did you pay off some debt? Where did you spend the most? Did you splurge on clothes or dining out? You’ll start to see patterns of behavior that you can adjust if you aren’t happy with your currently financial reality.
Making a budget isn’t about not spending on things you enjoy. It’s about understanding your habits and finding opportunities to better prioritize your money.