If you haven’t already, it’s not too late to start focusing on getting your finances in shape.  Many people are feeling more stressed given the uncertainty in these times, and one thing that is on everyone’s mind is money. 

Whether you live alone or have a family of four, getting in the driver’s seat of your financial situation starts with creating a budget. Here are some tips on how to create and manage a household budget.

What is a household budget?

A household budget is an estimate of your income and spending for a set period of time. 

3 main budget categories

Fixed expenses, variable expenses, and savings are the three categories that typically make up a budget. Classifying your expenses into one of these categories can help you more accurately manage your money and keep up a routine.

The key is to put your plan into action.

Fixed expenses

Fixed expenses are expenses that don’t change, or change very slightly, from month to month, like your mortgage or rent payment or a loan payment. Your utility bills and groceries can also be estimated and assigned a fixed amount.

Here is a list of items that are more often than not included in the fixed expense category:

  • Mortgage/rent

  • Homeowners insurance

  • Utilities (water, electricity, gas)

  • Groceries

  • Healthcare

  • Auto insurance

  • Home services (cellphone, internet)

  • Property taxes

  • Credit card bill

  • Loan payments (student loan, auto loan)

Variable expenses

Variable expenses are any costs that can differ from one pay period to the next. These expenses are usually within your control, and you can decide whether your budget can handle  the extra expense or not. Some examples of variable expenses are:

  • Personal care items

  • Monthly subscriptions (subscription boxes, streaming services)

  • Dining out

  • Shopping

  • Parking

  • Tobacco/alcohol

  • Entertainment/sports and recreation

  • Fuel

  • Public transportation

Savings

Savings is a very important piece of your household budget. Savings can be further split into two categories:emergency fund and goal-oriented savings.  

Saving is key. Rule of thumb is, pay yourself first.

Goal-oriented savings

Goal-oriented savings include our saving goals for retirement, education, down payment on a home or car. Taking into consideration that the savings category is a must in a budget, always make room for it. This savings account should be off-limits until the goal is reached.

Emergency fund savings

An emergency fund is important to keep you from falling into a financial hole because of an  unexpected expense. For instance, a car accident could result in you needing to pay for car repairs or medical expenses. Or your air conditioner could go bust in the middle of summer.  

Some common examples of when you would rely on an emergency fund include:

  • Gifts

  • Medical expenses

  • Vet bills

  • Home repairs

  • Tax bill

RELATED> 22 unexpected reasons you need a solid savings

5 steps to create a household budget

Creating a budget will help ensure your finances stay on track. The financial gurus at GOBankingRates came up with five simple steps to create a budget:

  1. List monthly expenses

  2. Determine monthly income

  3. Set monthly spending and saving goals

  4. Track spending habits

  5. Adjust budget if needed

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Credit: gobankingrates.com 

List monthly expenses. Making a list of all of your monthly bills and variable expenses will help you see your spending in one shot. It will also help to determine which expenses you can potentially make adjustments to or cut completely if needed.

Determine monthly income. Identify your monthly net income (what you take home after taxes). It’s easy to overestimate what you can afford if you think of your total annual salary is the amount you can spend.

Set monthly spending and saving goals. Ready to renovate your kitchen? Want to upgrade your living room with a new couch. These are examples of short-term savings goals. On the other hand, a long-term goal would be growing your retirement savings, or paying off a student loan. These goals may take years to reach.

Track spending habits. Tracking your actual spending habits might be the most difficult step in creating and managing your household budget. You can try creating a simple spreadsheet to track your expenses, or you can try a budgeting app like Mint or YNAB.

Adjust budget if needed. Your budget isn’t going to be set in stone forever. As your needs change, so will your budget. Review your budget on a regular basis. 

Adjusting your spending and saving habits may be difficult, but having a savings goal in mind will make it easier. Suddenly skipping movie night or passing on that weekly fancy dinner might not be so hard when you know the money is going toward that vacation you’ve been wanting. 

Tips to trim the fat from your household budget

Skip the coffee shop

I know this one is always mentioned, but there’s a reason why. If you grab a $4 latte just three times a week, that’s a monthly expense of $48, or $576 a year! You could keep yourself protected with life insurance or renters insurance with that amount. 

Compare auto insurance

The national average for car insurance is $1,517 a year. You can switch insurance anytime, and shopping around ensures you always have the lowest rate. Squeeze gets you multiple quotes so you can choose the best auto insurance policy that meets your needs - and your budget.

Buy used

From eBay to Poshmark, you can find great deals on everything from clothing to jewelry and art. Local sites like NextDoor also have community forums where you can find used items like yard supplies and furniture.

Cancel unused memberships

We’re all guilty of holding on to a membership (or two, or three) that we don’t use. The $10 a month subscription for that app adds up to $1,200 a year. Whether it be a gym or magazine membership that you're not putting to use, unsubscribe and put that money toward paying down a debt or building your savings!

The 50/30/20 budget

The 50/30/20 budget is a common budget that’s easy to use. It works by dividing your budget into three categories: needs, wants, and savings/debts.

  • No more than 50% of your monthly income goes to cover your fixed expenses.

  • No more than 30% of your monthly income goes to cover your wants or variable expenses.

  • The last 20% of your income goes to your spending and savings goals.

Whatever method you choose to track our spending, a budget will ensure you reach our financial goals.