Build a Household Budget to Save Money in 6 Steps

Tired of living paycheck to paycheck? It is probably time to create a household budget.

A staggeringly high 4 out of 5 US workers live paycheck to paycheck, and the recent government shutdown highlighted how dire people’s finances are when their income is cut off.

Establishing a household budget and saving money will help prevent you from struggling with a similar situation. By establishing tighter spending and putting money aside for a rainy day you can start reducing the financial anxiety that affects so many families.

Here are six simple steps to take to establish a budget and start putting money aside for savings.

1. Identify Your Financial Goals

Do you want to get out of debt? Start and manage an emergency fund? Or invest money for your kids?

Having a goal in mind will help you balance your budget more intelligently and also helps you stay accountable to spend less and save more.

“I want to save money for a rainy day” is too vague and won’t keep you on track towards actually saving money. A financial goal needs to be specific to be effective.

A good example is: “I want to put $200 every month into an emergency fund.”

You can keep your goals in mind by writing them at the top of your budget document. To make your budgeting more engaging you can also draw up a progress chart like a fundraising thermometer to keep on your wall.

2. Choose a Household Budget Planning Template

There is no shortage of household budget planner templates out there, and some of them prioritize different lifestyles and financial goals.

Choosing whether you want to do your budget on paper or start a household budget worksheet is another important consideration. If you are artistically inclined, you may even want to look into bullet journalling to turn budgeting into an art form.

Here are a few household budget worksheets you can download and use. Consider editing them to suit your needs and to make sure they are easy to update and interpret.

3. List Your Net Household Income

How much is your household bringing in every month?

If you and your partner are salaried it is easy to determine how much money you make after tax.

If either of you works part-time in one or more jobs and have fluctuating monthly hours, you need to determine how much you bring in on average. Add up the amount you earned at that job over x number of months, and then divide that total by x to get a monthly average.

4. List Your Recurring Expenses and Extras

Start keeping receipts for all purchases if you don’t already and use them to determine your spending.

Recurring expenses are mortgage and auto payments, bills or necessities like groceries that you need to account for every month. For items such as groceries or gas that might change month to month, ballpark how much you usually spend monthly based on your recent bills.

Then list out all the non-essential items that you have been spending money on recently. Write down these items with an estimate of how much you might spend on them in a month.

Examples of non-essential expenses include:

Eating out or buying lunch
Daily coffees
New clothes or cosmetics
Electronics
Nights out with friends or your partner
Treats or outings for your children
Lottery Tickets

Once you have written all these expenses out, it will be easier to prioritize which ones to cut out or reduce. The idea isn’t to cut out every single thing that brings you joy, but you may have to scale back a little.

5. Establish Your Spending Limits

Subtract all of your expenses from your income. How much is left over? How much more would you need to save per month to reach your financial goals?

Once you have established how much more you want to save, start looking for ways to adjust your habits to save money. It can be difficult, but you will need to start identifying which items are truly necessary, even if you feel like they are hard to live without.

Start with non-essential expenses like daily coffee or buying lunch. How much could you save by only buying lunch once a week, or making your coffee at home? Instead of date night at a restaurant, what about buying a bottle of wine and making dinner?

You can also likely find ways to reduce your spending on essentials like groceries or gas. For money-saving tips consider reading some of our other articles:

Keep reducing the expenses where you find room to trim, and then add to your savings. Rinse and repeat until you have a number you are happy with.

6. Keep Refining and Celebrate Success

As you progress month to month, you will likely identify ways to trim your budget even further. Keep adjusting your budget to suit these new changes.

If you don’t make your goal the first month, don’t be upset and give up. Maybe an unexpected expense like a car repair came up. Don’t get discouraged, that is exactly why you are working on your rainy day fund.

It may just be that you need to set a more realistic goal. If you made an impulse purchase that you now regret, learn from that experience and keep your budget in mind when considering buying something you don’t need.

A great way to stay accountable to your budget is to create financial milestones and celebrate reaching them. For example, if your end goal is to have an emergency fund with $5000, you might set the first milestone to be $500.

Each time you reach a milestone you can agree to treat yourself to something fun but reasonable, like a night out.

Budget Your Way to Financial Security

While budgeting and cutting out habits from your life may seem like a drag, when you start seeing progress you will be inspired to save more where you can.

The climb is hard, but the view at the top is beautiful.