How to Create a Household Budget

Do you know how to make a zero based budget?

Having a household budget allows you to match and keep track of your incoming money with your outgoing money. Knowing where your money goes each month is the best way to take control of your family finances, save for the future and prevent or get out of debt.

Here’s how to create a household budget:

Keep Track of Money for 3 Months

Before you can accurately set up a household budget, you need to have a good understanding of what you’re spending your money on. For two to three months, keep a notebook and jot down everything you spend money on from bill paying to entertainment to the pack of gum at the corner store. Another way to keep track of your money is with a money management program such as Quicken or

Also jot down all sources of income for this time period, including pay checks and any other sources of incoming money. This close look at your finances might change the way you think about debt.

Organize Your Expenses

Once your tracking period has ended, go through your notebook and create a list of fixed expenses on one page and a list of variable expenses on another page. Your fixed expenses are payments that are the same each month, and generally include your rent or mortgage, taxes, car payment, and loan payments.

Your variable expenses are those which fluctuate from month to month, and may include your car insurance, food, gas, medical, utilities, entertainment, children-related expenses, emergencies, and credit card payments.

You can make many of your variable expenses a fixed expense if you pay the same each year. For example, if you have quarterly expenses, you can take the total paid annually and divide by 12 months to figure out how much it costs you on a monthly basis. Doing this for all expenses possible will help you budget more accurately.

Determine Your Income

Take a look at your notebook for all sources of incoming money. Most people have fixed income in the form of a salary, but if your income is variable, you’ll need to take the average income for each month as accurately as you can.

Start Matching Income with Expenses

Look at the total of your fixed expenses list and compare it to your total monthly income. If your income isn’t enough to cover the list of fixed expenses, you’ve already got major issues to worry about! If you’re in that situation, you’ll need to increase your income or begin decreasing your expenses.

If your income is more than your fixed expenses, then make sure you have enough coming in to pay for everything on your variable expense list, too. If you don’t, you’ll have to decrease expenses or increase income (by getting a second job or finding a higher paying job) until it works out.

Build an Emergency Fund

The hardest part of a household budget is accounting for emergencies and unexpected financial hardships. The best way to avoid problems that arise from a decrease in income or an increase of expenses is to have an emergency fund available to pay for them when they occur – without having to dip into the money you normally use to pay your regular expenses. Try to build an emergency fund by deposited the same amount each month, as part of your “fixed expenses” – then when you have an unexpected expense, you can use your emergency fund and keep paying your bills with your income.

If you just don’t have any room to set money aside for an emergency fund (your income is exactly the amount you need to pay your bills); you can use an income tax refund or any other source of unexpected income (gifts) to start an emergency fund.

It takes work and a little practice, but before you know it, you will have a working budget which will make managing your money easier than ever.

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Date published: July 5, 2010. Last updated: January 14, 2014.

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Ryan Guina is the founder and editor of this site. He is a writer, small business owner, and entrepreneur. He served over 6 years on active duty in the USAF and is currently serving in the IL Air National Guard. He also writes about money management, small business, and career topics at Cash Money Life. You can also see his profile on Google.

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