It's 2019. Time to buckle down and become financially frugal and live with financial peace.
We’ve put together some great tips to begin the new year off strong with a financial plan. Whether you live alone or have a family of four, this applies to all who want to learn how to manage a household budget.
a household budget?
A household budget is an estimate of income and expenditures for a set period of time. Dave Ramsey was right when he said that “While most budgets are similar, not all budgets are created equal.”
the main household budget categories?
Fixed expenses, variable expenses, and savings are the three categories that typically make up a budget. Classifying each category with its proper expenses can help you learn how to accurately manage your money and keep up a routine.
The key is to put your plan into action.
Fixed expenses are all those expenses that do not change from month to month, like your mortgage/rent payment or a loan payment. Your utility bill and groceries may vary slightly each month, but for the most part, these costs can 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:
Utilities (water, electricity, gas)
Auto payment & insurance
Home services (cellphone, cable, internet)
Bank or credit card fees
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 afford the extra expense or not. Some examples of variable expenses to consider for your household budget are:
Personal care items
Entertainment/sports and recreation
Savings is a very important piece of your household budget. There are two savings categories that are necessary to understand: goal-oriented savings and irregular/unexpected expenses.
Saving is key. Rule of thumb is, pay yourself first.
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 is “off-limits”, it is in not to be touched until the goal is reached.
Irregular/unexpected expenses come up throughout the year also need to be budgeted for. Preparing for these expenses will ensure you don't have to use your credit card unexpectedly. This savings account is made for the unplanned expenses, so don’t feel bad when you have to pull out a big chunk to pay for that unforeseen car breakdown. Other examples of an irregular expense are:
- Home repairs
6 steps to create a household budget
Below are six steps to get your budget planning moving in the right direction:
Determine monthly income
Set monthly spending and saving goals
Make a plan
Determine monthly income
Number one is always to identify your monthly net income. It is easy to overestimate what you can afford if you think of your total annual salary is the amount you can spend. Remember to subtract your deductions including Social Security, taxes, 401 (k) and your savings account allocations. Your net income is the amount you should create a budget around.
Tracking your monthly spending in each category will help you determine which one you can potentially make adjustments to if needed. In case of a pay cut, you will be able to reduce spending in the category that may have spent a bit over your budget.
Begin by writing down all your fixed expenses including regular monthly bills mentioned before such as rent/mortgage, insurance or utilities. It might not be possible to cut back on these, but knowing how much of your monthly income it takes up is important.
Your variable expenses generally change month to month, like fuel, dining out, personal care items and more. This is the category you will have some wiggle room in.
Your credit card statements are a great place to figure out your itemized expenditures.
Set monthly spending and saving goals
It is easy to set goals, but it is a bit difficult to put them into play. Make a list of your to-be-accomplished goals, including short term and long term.
Short term goals take about a year to accomplish. Long term goals are those for retirement savings, educational costs and these may take many years to reach. It is important to prioritize your savings along with your other expenditures for your budget.
Make a plan
With your fixed and variable expenses put together, it will help you acquire a sense of what you'll be spending in the upcoming months.
You can accurately plan accordingly with your set budget moving forward.
Adjusting everyday habits are difficult but it is necessary when you may want to save enough money for a down payment on a home. Skipping movie night or that weekly fancy dinner might do the trick to free up some extra cash.
Having put together your income and spending, you can determine how much money you may have left over or where you can cut back to put extra towards your goals.
It is important to review your budget on a regular basis in order to stay on track with your expenses and savings. There are always little changes that can be made to your budget.
Always keep your budget in check with the steps listed above.
How to cut a household budget
Save money on food… and coffee!
Getting that morning latte that costs $4 adds up! Let's just say you only get coffee 3 times a week - it turns into a weekly expense of $12 and a monthly expenditure of $48!!
That is pretty close to a cellphone bill if it's not more, just on coffee. It seems like an inexpensive purchase at the time but gradually adds up.
Eating out gets very costly, especially with a large family. Going out more than once or twice a week can rack up a few hundred without even realizing. Making homemade food and meal prepping can save more than you'd think. There are many different apps and websites that offer free recipes along with weekly meal assistance like Forks Over Knives.
Get rid of cable!
Streaming is the new trend! It is crazy to think that by 2020, the average cable bill is expected to be around $200 a month.
That's a whole lot!
With streaming, you only pay for the channels and networks you want to watch. Compare all your streaming TV options to make sure you are getting the best deal. Online providers such as Sling TV, CBS All Access, Roku offer different plans and specials throughout the year.
Cancel those unused memberships
We are all guilty of not canceling those memberships that are recurring expenses which hit our account monthly.
A $10/month subscription? Pshh, that's nothing. Yeah, right! It adds up to be $1,200 a year. Whether it be a gym or magazine membership that you're not putting to use - unsubscribe and cancel!
Just think of what you can do with that kind of money.
Find free entertainment
It is so simple to have a good time with your loved ones by spending the day at the park or the beach with nice weather instead of spending money on expensive theme parks. Free entertainment helps you enjoy the moment and helps you find internal happiness with your surroundings.
What should a household budget look like?
Everyone has many different ways of budgeting. There is no right or wrong way to do so.
The 50/30/20 budget is a simple guideline for your understanding.
No more than 50% of your monthly income goes to all your needs - these are usually all of your fixed expenses that you budget for.
Your wants or variable expenses consist of 30% of your monthly income. This category is one that can fluctuate quite a bit if you don't plan accordingly.
With a $3000 monthly income, $900 that goes towards this category. Between personal care items, dining out, subscriptions and many more
The last 20% of your income goes to your goals! Save, save, save. This is the category that many tend to overlook but what happens in case of an emergency trip or a mechanical issue with your car? Savings are made for those unexpected expenses that catch you by surprise. Along with that, we all deserve to treat ourselves too - perhaps a vacation? Yup, savings are for that too!
Using a budget planning calculator will give you a better idea of exact amounts for each category.
Best financial apps to keep you on budget
Looking for that extra push to help you save? Below are the best financial apps that do the work for you!
Digit calculates what you can afford to save depending on your income and spending habits/patterns. The money you save gets transferred from your checking account into an FDIC-insured Digit account. You can choose the number of transfers you want per week, typically users choose two to three a week. Digit offers a 30-day free trial and a small cost thereafter of $2.99 per month.
Acorns is an investment app that rounds up your purchase to the nearest dollar and adds that difference to your Acrons investment account. The money will be invested in a portfolio and you will earn a return on the investment. A basic taxable investment account costs only $1 a month.
Paribus is a revolutionary approach to online shopping. It helps users save money on their recent purchases by scanning their online shopping receipts to monitor price drops and shipping delays. They will file a claim on your behalf and you will receive the money back from those price reductions.
Trim is a free service that promises to automate your savings without having you do any of the work. They are able to send a list of your monthly subscriptions and give you the option of canceling the ones you don't want. Trim will also negotiate your bill with Comcast on your behalf to get an account credit if there happens to be an outage. Trim tracks your monthly expenses so now you don't have to. It is completely free to sign up. They do take 25% on your first bill you save on though… but what’s $5 to a $20 savings? Trim is a unique product that can help you save money without going through the steps of cancellation or a 30-minute phone call with your cable provider to dispute an upcharge.
Choose a budgeting system
Paper and pencil
This is known as the oldest method for budgeting and it’s free, unlike other methods.
It's quite simple, your income will have to balance all of your expenses and you’ll know you’re on the right track. Keeping a record of all of your monthly expenses down the $4 mid-afternoon coffee!
There are many websites that offer free spreadsheet budgeting templates. Using an online spreadsheet can help automatically adding income and subtracting your expenses - all the math is done for you. There are many different formulas that help with organizing by dates or dollar amounts.
Free online software
There are many online programs that help with budgeting for free. Some web-based software like Manilla and Mint.com allow you to create and categorize your expenses and track your spending. Using software like these can tell you exactly where your money is going as soon as you swipe your credit or debit card.