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The Beginner’s Guide to Creating a Household Budget

Two hands holding a piggy bank

One of the most important steps in taking hold of your finances during Financial Literacy Month is to create a household budget to get you back in the driver’s seat. Read on to learn some great tips to build your budget so you can set yourself up for a solid and successful financial future.

Step 1: Understand What You Have
The best way to start dealing with how you use your money is to take stock of how much you have. The first step toward creating a household budget is pulling together your income and understanding just how much you have coming in. Check your last few pay stubs so you have a good idea of how much income you have each month. If your paychecks are the same every month, this step might be easy: just add up how much income you bring in each month and write that number down. If your paychecks differ greatly, you may need to add them up, find the average and use that number for budgeting.

Step 2: Think About Your Goals
After you have a good idea of how much money you have, it’s time to think long and hard about your reasons for having a budget and for wanting to gain control of your finances. Understanding the why of budgeting will help make it easier to stick to it in the long term. Are you saving up for a large purchase, like a home or a car? Are you hoping to pay off debt so you can have more financial freedom? Maybe you’re just trying to have a better understanding of your financial picture so you can make better decisions. Whatever your reason for starting a budget, make sure you think about it often so you can stick to your goals.

Step 3: Pay Attention to Your Spending
Before you can build a good and reasonable budget, you’ll need to do some research. If you already keep your receipts or have a digital list of your expenses, your job will be a little easier. If not, track every single expense you have for a full month, including everything from your rent payment to your phone bill, groceries, gas, all the way down to your morning coffee. Tracking every expense will give you a full and true picture of what a month of spending means for you. Once you have this information, put your spending into categories. You may want to track your expenses for two or three months to capture irregular bills such as auto registration and insurance.

Step 4: Make Your Plan
Once you have this information, put your spending into categories. Essential expenses like rent, groceries, gas, power bills, etc. should be your highest priority. The next category should be important but not essential expenses, like your cable bill, streaming services and other items that are mostly entertainment but still contribute to your quality of life. Your last category should be wants, not needs, and should be the lowest on your priority list. Once you have things split into categories, take a look at the totals that you spend in each group, and determine how that number makes you feel. Are you surprised at how much you spend each month on coffee? Do you wish your power bill was lower? Are you shocked at any of the totals of your spending categories? By looking at your expenses in groups instead of one massive total, it will be easier for you to decide whether you are happy with what you are spending, or whether you would like to make changes.

Step 5: Implement Your Plan
At this point, you will be ready to implement your budget plan and start making some financial changes in your life by determining where you can save and reallocate funds to make your budget work for you. The most important part of budgeting is understanding that it’s not a punishment. Instead, a budget is an essential tool to help you take charge of your financial future.

Are you ready to learn more about budgeting, budgeting styles and how you can make your money work for you? Check out these additional resources for more information: