Last updated on October 4th, 2019 at 09:52 am
Create a budget. Does that sentence send shudders down your spine? Many people feel that creating a budget is a long, complex ordeal that involves lots of math and formulas. While this may be true for large government budgets, a household budget does not need to be complicated. I want to share my four steps for creating a simple household budget.
When I entered the adult world 20+ years ago finances did not seem too complicated. A person goes to work. They make money. They spend it on things they need.
However, it is really not that simple, is it? You make the money, but before you know it, it disappears in a very mysterious way. You thought you had enough to cover those bills! There should have been enough and you can not figure out where it all went wrong.
Creating a simple household budget only requires four columns: Expenses, Projected Spending, Actual Spending, and Difference Between Projection and Actual. Click here to see my sample spreadsheet of a household budget.
Figure out your expenses and income.
The first thing that you must do to create a monthly budget is to figure out your expenses. This is fairly easy. Sit down with paper and pen and write down everything you spend money on. Write it down, even if it does not seem important. You need to know exactly where your money is going every month.
Something that you need to remember with this step is, “There is no cheating here.” Why would I say that? I will tell you.
Sometimes when I start listing out all the things I spend money on, I become tempted to leave something off the list. It may be because I feel guilty for spending money on that particular thing. It may be that I don’t want my husband to know I “wasted”. Whatever the cause, we are all going to feel that way at some point in this process.
However, it is important to remember that this is not about whether we spend money on the “right” or “wrong” things. This process is about figuring out where our money does go each month and dividing it properly so that we do not overspend. Let’s save the “what should we spend our money on” discussion for a different day.
Now you need to figure out the household income for each month. The income total needs to be the amount after taxes and any other deductions that your work may take out (i.e. retirement, insurance). Include the income from all job sources for every contributor to the household finances.
I like to list this at the bottom of my paper so that I can subtract the expenses from it later. You can receive an example on my spreadsheet here.
Project your spending.
In a column next to your listed expenses, make a projected spending list. Projected spending is the amount you think you will spend on each item during the month. It could look something like this: Groceries $500.00, Fuel $200.00, Mortgage $1,000.00, Savings $200.00.
The important part of this list is that the total of the projected spending list should equal the same as your income. While it may be tempting to want to make the projected spending amount less than your expenses, it is important to account for every penny here. That is why it is good to make an expense line for savings, investments, and/or emergency funds.
Calculate actual spending.
This next step takes a bit more time but can be just as simple as the others. Over the course of the month, document every penny spent in the actual spending column. This is the time to be a receipt saver!
I personally like to save all my receipts. I pick one day of the week to sit down at my computer, balance my checkbook (yep, I am old-school), and update the budget.
However, many people prefer to look at their bank statements once a week. That way works just as well. Input all the data into your budget from the statement. Don’t forget about cash purchases, if you do it this way.
NOTE: During the first three months of keeping a budget, you will need to adjust the projected spending for the following month to match the previous month’s actual spending column. By the end of the third month, you will have a much better idea of what your actual spending looks like.
A bit of simple subtraction.
Each month subtract your actual spending from your projected spending. Sometimes this will be a negative number. This is okay. It helps you to adjust your projected spending column until it is closer to your actual spending.
After that, you want to subtract your final actual spending number from your income. This is the number that you DO NOT want to be a negative number.
If you do not particularly like math (like me) and perhaps shy away from doing a budget because of this, be sure and use my sample spreadsheet to start your budget. I have already plugged in the formulas for you, so all you have to do is add your own expenses and numbers.
Sign up here to download the Sample Budget Spreadsheet.
A budget is important because it helps you keep track of your actual spending. It is easy for expenses to get away from you. A good example of this for us was eating out. We assumed that we did not spend very much on eating out, but when we kept track of it, we realized that we spent way more money then we intended on food.
As I have shown, a household budget does not need to be complicated. I hope this helps you get started in the right direction in creating a simple household budget that allows you to track and monitor your spending habits so that you are never again left wondering, “What happened to my money?”