Create a Household Budget that Works

One of the basic rules in managing finances is the use of a budget. This is true for our government, schools, hospitals and any other entity with income and expenses. Yet surprisingly, approximately half of the households in the US do not have a budget in place for managing personal finances. Those with a budget in place often find it difficult to make the numbers work each month. To create a budget that will work for your family, you must first understand the purpose of budgeting finances.

Budget Basics

A budget is an account of all income coming into the household and all expenses paid out of the household. The purpose of a family budget is to allocate every dollar coming in to a specific category. Categories may vary for each household but the basics include: groceries, utilities, debt payments, savings, entertainment, taxes, insurance premiums and housing costs. Parents will have additional categories for expenses associated with providing care for their dependents. Once all expenses have been accounted for and assigned a category you can see where to allocate money from income and other earnings.

Overlooked Expenses

Where many families take a wrong turn in creating a budget is not accounting for all spending. If your budget does not accurately reflect what you really spend each month, you budget will never be balanced. To get the most accurate account of your spending, keep a record of daily purchases including item and price for one month. Also remember to include in your budget annual or semi-annual payments and any other anticipated expenses that occur on an irregular basis. Don’t forget expenses associated with any sports, clubs and other activities in which your child is participating. Birthdays, anniversaries and holiday spending can also be budgeted for the year. These are all expenses which are commonly overlooked when creating a budget, yet paid out of income included in the budget.

Balancing Your Budget

By creating and following a balanced budget you lay the groundwork for long term financial stability. This is an important aspect of money management and will contribute to the financial security many families are lacking. The process of creating a budget often leads to a shocking discovery; a lifestyle which cannot be supported by the household income. If the total amount of expenses exceed the income, changes have to be made to balance the budget. This can be accomplished by adding to the income amount or reducing the amount of expenses. Budget calculators can be used to see where changes could be made to balance your budget.

The entire family will be affected by lifestyle changes, therefore parents are encouraged to include their children in budget discussions or decisions in a manner appropriate to their age. By involving the entire family, children can learn an early and valuable lesson about managing personal finances.

Debbie Dragon is a personal finance writer providing content for – a site which offers a large selection of free spreadsheet templates and financial calculators.

2 Responses to “Create a Household Budget that Works”

  1. Eric @ Debt Snowball Calculator July 24, 2011 at 6:19 pm #

    Great post! Most people definitely miss their budget the first couple times around. I know I had a motivation to keep my budget very lean, but it took me about four months to find out that it wasn’t feasible.

    Just found your site and I like the content so far!


  2. Jerret July 24, 2011 at 8:10 pm #

    Thanks, Eric. Seems like I’m always tweaking my budget one way or another.