Establishing a family budget is one of the most important steps in controlling your spending and building a solid financial foundation for you and your family. It helps you prioritize spending, track where your money is going, pay off debts, make long term plans and get them done.
Making a basic budget worksheet is easy. You can do this in a spreadsheet like Google Sheets or with a sheet of paper and a pencil. The steps are the same in all cases. Here’s how to create a household budget worksheet:
- List your income.
- Add your expenses.
- Calculate your net income.
- Adjust your spending.
- Track your spending.
Read on for more information on each step.
List your income
Write down each source of income you bring home in a month. Focus on how much you reliably take home, so don’t include irregular income such as overtime. When you earn extra money, you need to apply it to big financial goals like repay debts quickly.
What if your income fluctuates a lot? This is the case with many freelancers and entrepreneurs. In this case, estimate your average monthly income, then subtract 10%, so you don’t systematically run out of income. You can also consider writing a budget for a period longer than a month.
When you write this, indicate the type of income in a left column. For example, label a column as “His weekly salary multiplied by four” or “His bi-weekly salary multiplied by two”. Note the actual amount of each item in the right column. When you’ve got everything listed, add up the numbers in the right column. This is what we have to work with.
Add your expenses
Don’t worry about ideal spending habits just yet. Instead, focus on what you’re spending. You can start by making a list of your regular monthly bills, rent, mortgage, utilities, internet, cable, Netflix, etc. As with your income, list what the item is on the left and how much it costs on the right.
After that, take out your latest bank statements and credit card statements and start listing these expenses. Use the real numbers. Don’t try to hide anything. You’ll want to group common expenses together, so if you stop by Starbucks twice a week, add up all of those visits and put them under one “Starbucks” item.
You’ll want these numbers to be pretty close to your average spend, so try doing this for the past three months in total, then divide each number by three. That way, something exceptional from the past month doesn’t skew things too much.
Add these numbers and you have your actual expenses for the month.
Calculate your net income
Now comes the moment of truth. You need to calculate your net income, which is how much of your monthly income is left after your monthly expenses. Take your total income and subtract your expenses. Ideally, this remaining number should be positive. If not, it means that over the course of an average month you are racking up debt, and it’s not a good place to be.
Adjust your expenses
From there, you’ll want to adjust your spending. Go through this list of expenses and ask yourself which ones you can reasonably adjust downward. Let’s say you spend $ 750 per month at the grocery store and $ 250 per month at the restaurant. Maybe you can pay more attention to your food expenses and cut it down to $ 600 per month at the store and $ 200 per month at the restaurant. Maybe you spent $ 200 a month on your hobbies. In this case, try to aim for $ 150 per month.
Don’t try to drastically adjust your spending otherwise you will find it miserable and too difficult. Instead, make smaller cuts of around 20% or 30% on spending that you can easily cut.
You can also look at your regular bills and find ways to reduce them. You can reduce your monthly energy bill by keeping the thermostat a little lower in the winter and higher in the summer. You may be able to completely reduce your cable bill if you already have Netflix and an antenna.
Track your spending
Once you’ve decided on some changes, track your spending for the next month. Focus on categories related to your behavior and spending choices, such as grocery spending, dining out, entertainment spending, and leisure spending. Track every penny you spend in these categories and try to keep your spending for the month below the goal you want to achieve.
If you can, congratulations. You should spend less than what you earn, and you can use that money to build an emergency fund, pay off debt, or start contributing when you retire.
If you find it difficult, sit down and reconsider if your target numbers are realistic. You might have aimed too high in a particular category, so don’t be afraid to adjust and try again.
Either way, you’ve gained a lot more control over your spending. It’s real financial progress, something you should be proud of and something that will turn into a real financial change in your life.