May 7, 2012

How to Create a Household Budget: Part II (Getting it On Paper)

“He who is faithful in a very little thing is faithful also in much; and he who is unrighteous in a very little thing is unrighteous also in much. Therefore if you have not been faithful in the use of unrighteous wealth, who will entrust the true riches to you? "
NOTE: This is part II of the series. To read part I, click here.

 Once upon a time, every Proverbs 31 Woman had a household budget. To many modern women, however, that’s a foreign concept. Why would a private household need a budget? Well…a budget equals:

* Less stress.
* Real control of your finances.
* Always knowing there is enough money for all the month’s expenditures.
* Always knowing how much money is in the bank.
* Getting out of debt faster and easier.
* Easier savings.
* A better feeling about your abilities.

A household that’s run without a budget is one that’s stressful for anyone who pays bills or does shopping; it’s a household that wonders “where all the money goes;” it’s one where the income-earners are easily depressed, wondering why they work so hard; it’s one where debt is common and savings are rare.

The good news is, budgeting isn’t difficult – even if you’ve never created a budget for anything before. Trust me; I count my toes with a calculator, but I still manage to keep a reasonable budget.

Step One: Think Categories
Before you attempt to create a household budget, I highly recommend keeping track of every cent your family earns for at least one month. (Learn how, here.) 
Then you can look at your spending and see what categories it falls into. Write these categories down on a piece of paper.
First, think in terms of regular expenses. These could include:

* Tithes
* Rent/mortgage
* Water/sewer
* Electricity/gas
* Telephone/cell phone
* Internet connection
* Insurance premiums
* Garbage/dump fees
* Vehicle payments and other debts
* Groceries and dining out (they should be two separate categories)
* Toiletries and cleaning products
* Entertainment
* Savings

You will probably also want a category for “free spending” – usually cash you carry around for miscellaneous, smaller purchases.

Now think about your irregular expenses. These might include:

* Charity
* Gifts
* Parties
* Christmas
* Vehicle maintenance
* Household repairs

Once you have a budget in place, these expenses will actually become regular expenses, because you’ll set aside a specified amount for them each month - ideally depositing the amount into a different bank account.
As you create categories, avoid one called “Miscellaneous.” The whole idea of having a budget is to make yourself perfectly aware of your finances. But if you have a “Miscellaneous” category, it’s too easy for money to slip through your fingers.

Step Two: Put it on Paper
There are several ways to get your budget on paper. One is to use graph paper and a pencil. Another is to use a table in Word or Excel. Another is to use an online tool. (I hear Pear Budget is very user friendly.)
To begin, I suggest using either pencil and paper or a program you already have on your computer.

There’s no sense in spending money on budgeting if one of these methods works well for you.

The basic format of a budget is simple and straight forward:

1. The top row should have one rectangle labeled with each one of these: “Category,” “Budgeted Amount,” “Actual Amount,” and “Difference.” It is possible to use just “Category” and “Budgeted Amount,” but I think you’ll find it’s helpful to write down exactly how much you spent each month – and to know what money is left over (if any).

2. Along the side, first write any appropriate categories for income. (For example: “Hubby’s salary,” “Ebay Income,” and “Garage Sale Income.”)

3. Next, write the categories for your regular expenditures, such as tithing and utilities.

4. Finally, add the categories for your “irregular” spending.

(If you're having trouble visualizing this, the last section of this post contains links to examples.)

Figuring the Figures
All this may seem obvious to some of you, but you may wonder (as I did for many years), just how you’re supposed to accurately project how much you’ll need spend in each category.

That’s why you’ve tracked every cent of your income for at least one (and preferably two or three) month(s). From this list of expenditures, you can come up with figures that will actually work in your budget.
For example, let’s say I want to try to figure out how much to budget for our water bill. I’d look to my booklet where I track every cent of our spending, noting how much I paid for water each month. I’d use the highest figure for my budget.

It’s true that some expenses vary throughout the year. For example, my water bill is always highest in the summer because there is little rain when my vegetable garden is in full swing. So I’d use whatever my highest bill was as my budget for water, knowing that most months I’ll spend less than that. (If you’re not sure what the top figure might be for some categories, just use your best guess. And continue writing down every cent you spend; trust me, it really helps!)

For your “irregular” categories, such as “Christmas,” decide how much you’ll want to spend, then divide that figure by 12. For example, if I wanted to spend $300 for Christmas gifts, my monthly budget in that category would be $25 a month. I could actually spend that $25 a month on gifts and squirrel them away, but I think it works better to stash that cash in a separate bank account each month.

There may be some irregular expenses that you can’t predict, like vehicle maintenance. So just estimate what you think you may spend in a year’s time, and divide that number by 12. Sometimes expenses like these are determined by what’s left over from the paycheck at the end of the month. The trick then is to make sure those left over funds go into a separate bank account and are set aside for specific purposes.

It Isn’t Perfect
You may be sensing that a budget isn’t set in stone. And you’re right. You should not expect your first budget to pan out perfectly. But with time, as you adjust your figures to your actual expenditures, you’ll find that it’s accurate most of the time.

Left Overs
Hopefully, you’ll have some money left over at the end of every month, even if you don’t have a “Savings” category.

I like to completely zero out my budget at the end of every month – otherwise, I always find a way to spend that left over money on inconsequential things. So once all the bills are paid, transfer any left over money into one of three places:

* Your separate bank account, where you stash money for “irregular” expenditures, or
* A savings account/investment, or
* Put the money toward a debt

If There’s Not Enough Money
With a budget, you will quickly learn if you are spending more than you are making. (Actually, keeping track of every cent spent should show you that, too.) If this is the case, drastic action is needed:

* Cut all “fun but unnecessary” expenses. We can all learn to entertain ourselves for next to nothing, money-wise. And if you get your budget under control and get out of debt, you can always begin giving yourself a “fun” allowance again.

* Cut back on bills. This can be tough, but it’s possible. For example, if you pay for cable, try Netflix instead. If you have a high speed Internet connection, go for a slower speed (and shop around for a better deal). Get rid of your land line (or dump your cell). Consider moving to a smaller and less expensive home. Stop using your air conditioner. Et cetera.

* Cut back on other spending. Learn to shop more frugally for groceries. Learn to use fewer beauty supplies. Use coupons. Make your coffee instead of buying it at Starbucks. Use energy and water frugally.

* Get out of debt as soon as possible. Sadly, many of us could live quite comfortably if it weren’t for credit card and other debt. Figure out how much you’d have to pay each month to get out from under your highest interest-rate debt, then make it happen by budgeting in that figure and paying it each month. When that debt is paid off, scrape together every extra cent to pay off the next highest interest-rate debt. If it’s not possible to spend more than the bare minimum payment on your debts, you really need to find another way to bring money in to pay those debts off.

Hopefully, these steps will leave you with at least a little bit left over at the end of each month. If you’re in debt, dedicate that money to paying off those debts. Even an extra $5 in a credit card payment, made whenever there is extra money, will get you out of debt faster.

And one final tip for those who are spending more than they bring in: Arrange your monthly budget so that the most important items are at the top and the least important are on the bottom. For example, aside from tithing, your mortgage payment or rent is your most vital bill, so put it first on your budget. Groceries is right up there, too, as is a source of heat, like electricity or gas. In the middle, you'd put other utilities. The last things on your list would be things like entertainment, cable television, and an Internet connection (unless you need one for work). Now pay your bills in this order; this way, if you can't pay all the bills, you'll at least get the most important ones covered and you'll easily see what things you can chop off your budget.

See a Sample Budget
There are many, many examples of household budgets on the Internet, so I didn't create yet another one. Here are a few to check out:

* Sample layout, plus a free Excel download to get started on your own.

* Sample layout with figures - just remember, these figures may or may not be realistic for your household.

* Free. PDF offering a basic layout for a household budget.

* Another free downloadable layout, plus other helpful money related worksheets.

“No one can serve two masters; for either he will hate the one and love the other, or he will be devoted to one and despise the other. You cannot serve God and wealth."


  1. Good tips!

    We've been trying to budget regularly, but we usually forget to sit down. A big problem with us is the fact that we A: never know week to week how much overtime my husband will do (we usually need at least 5 hours/week to make budget), and, B: how much tax will be taken out when he does have more than 10 hours/OT.

    My husband sees the budgeting as my job--as is paying bills and doing most of the shopping--but it stresses me out so much I don't *WANT* to do it. I know it's vital, but I actually hate doing it. I hate even looking at the bank account online.

    When I do do it, we use a modified Dave Ramsey form (several things were too specific and don't fit how/where I shop) and didn't have categories for some things we need--like budgeting for my husband's tool expenses for his work.

    One thing we do re-evaluate every year is how much taxes we're having taken out and how big of refunds we're getting. We're still getting sizeable refunds, so it's probably something to change on paychecks. Yeah, that big check in the spring is nice (it allowed us to pay off all of our medical debt this spring) but we really could use that extra couple hundred/month throughout the year rather than in the spring...

  2. Liberty, I feel your pain. I hate dealing with money, too, but I've learned that even so, I'm better with it than my husband. So I do it to benefit us all. I know from experience how tough it is to create a budget when your income varies, but I think if you follow my advice of tracking every cent for a two or three months, you'll find you can estimate things more easily. You should even be able to figure out the taxes. And I very much agree about withheld taxes. It's always better to keep the money yourself and save a portion of it to pay taxes at the end of the year. That way, you can earn a little interest on it, instead of having the government borrow it without paying you interest.