What is a home budget?
A family budget is an expenditure plan that takes into account the income and expenses of a household. It helps households allocate money for certain expenses, save for financial goals, and identify areas where expenses can be reduced.
For example, if you live with a spouse and both of you earn income, your combined take home pay (or disposable income) would be included in your family budget. From there, you can allocate money to your individual expenses as well as your shared expenses and see how much money you have left. The remaining money is your discretionary income.
How to make a home budget
Whether you’re navigating life with your partner, sharing the costs with roommates, or focusing on your personal financial goals, budgeting is key to understanding where your money is going.
Here’s how to create and manage a home budget.
1. Choose a budgeting method
There are several ways to create a budget tailored to your individual needs. Here are some of the most popular budgeting methods.
- 50/30/20 Budgeting Rule: With this method, you would divide your household income into three sections: 50% needs, 30% wants, and 20% savings. This strategy is an easy framework to follow, but it may not work for people with low or high incomes, or for people who live in neighborhoods with expensive housing.
- Zero-based budget: With this method, the goal is to allocate every dollar of your household income so that your income minus expenses equals $ 0 at the end of the month. That way, if you have $ 100 left, you have to allocate it to something, like paying off debt.
- Envelope budget: With this method, you create a standard budget. Once you’ve identified your expenses, you take out the money for each expense and put the money in separate envelopes. Since most expenses are not paid in cash, a variation of the envelope budget is simply to keep an electronic expense statement in each envelope.
The budget you choose ultimately depends on your financial priorities and personal preferences. Take the time to find out which approach works best for you and modify each one to suit the specific needs of your household. You can also use Bankrate’s home budget calculator to get a head start on creating a budget.
2. Track your household purchases
Collect information from everyone in your household to account for all of your living expenses. Besides tracking your expenses, make room in your home budget for unique, non-recurring circumstances that you haven’t budgeted for. Items like expensive car repairs, home repairs, and tutoring services for your kids may need a bigger boost on your financial priority list. Consider sitting down with members of your household to discuss family expenses.
3. Write everything down
Documenting your home budget in a spreadsheet or budgeting app will allow you to visualize your spending and savings. Find an online template that can fit your financial needs into a practical application. If you want to make your own, Google Sheets, an Excel document, or even putting pen on paper in a notebook will work.
You can also sign up for Bankrate’s myMoney tool to ccategorize your spending transactions, identify ways to reduce and improve your financial health.
4. Continue to monitor spending
Constantly monitor your income and expenses and review your budget strategy to make sure it is helping you achieve your goals. Unforeseen events and expenses are a part of life, so give yourself the flexibility to reassess and adjust your budget as circumstances change.