How to Make a Household Budget

It is important for Generation Y to practice good financial responsibility.  Echo boomers were taught that getting an education and a good job would allow us to live comfortably.  However, that American dream is no longer a reality, so its important to be intelligent in your financial decisions.

Its really simple to create a quick and easy household budget and it gives you an idea on where you stand financially.  There is essentially three things you need to worry about:

  1. Income
  2. Static Expenses
  3. Discretionary ExpensesBudget

Income is the money you make.  It can be your job, investments, or even something as simple as your parent’s lending you some money.  This is how much money you make – and you shouldn’t be spending more than this amount.

Static expenses are things that you have to pay every month.  For most people, this may include rent/mortgage, car payments, insurance, utilities, etc.  These, for the most part, cannot be sacrificed unless you need to cut back.

Discretionary expenses are those little extra things in life that you can do without.  This would include monthly amounts spent on going out to the movies, eating out, alcohol, and clothes.  We need SOME discretionary spending in our lives to keep our sanity, but its best to keep it at a minimum.

So, what’s next?  Start out by opening a spreadsheet and listing out your income and all your expenses.  How does it add up?  Is the total a positive or a negative number?  If you are spending more than you make, you need to take a look at making more money, trimming down your bills (do you need HBO?  can you use less air conditioning? etc), and/or cutting out discretionary spending (stop going out to eat, packing lunches, etc)

Let’s take a look at an example:

Monthly Income: $2000

Rent: -$1000

Electricity: -$100

Student Loans: -$300

Cable/Internet: -$100

Car Payment: -$500

Car Insurance: -$100

Groceries: -$200

Going out to Lunch: -$100

Clothes: -$100

Total: -$500

Whoa, that budget is negative! What is wrong with this picture?  There are a few obvious things that can be tweaked to put this fellow back onto their feet again and put some money into that savings account.  Here are some tips:Pennies

  • Your mortgage/rent should be between 25%-35% of your monthly income including utilities.  This person exceeds 50%!  That needs to be trimmed down right away!  Move ASAP.
  • Your car payment should be between 0-20% of your monthly income including insurance.  This person is spending 30%!  They need an affordable car so they aren’t in such a rough spot.
  • Discretionary spending can be limited.  Set a budget of only spending $50 a month eating out and $50 on clothes.
  • Set aside around 10% of your income to savings.  You should ALWAYS be saving money.  The only exception is if you have debt.  Then, it is more important to pay that down.

Let us take a look at the revised budget after making the above changes:

Monthly Income: $2000

Rent: -$500

Electricity: -$100

Student Loans: -$300

Cable/Internet: -$100

Car Payment: -$150

Car Insurance: -$100

Groceries: -$200

Going out to Lunch: -$50

Clothes: -$50

Total: $450

Wow, that makes a difference.  The person went from being negative to having a surplus of $450 every month.  $200 of that should go into savings every month and the other $250 can be used however the person sees fit.  Put more into savings, pay down the student debt, or go have some fun with that money.  Its okay with spending money – just be smart about it!


    • DBLsolitutde on 09/29/2010 at 4:48 PM
    • Reply

    Good ideas, but what about people who are living in expensive apartments on a year contract and can’t go and sell their car either??? How are they going to fix it? Not everyone can move or backpedal out of a car sale……

    • Rosethe on 08/16/2017 at 5:10 PM
    • Reply

    Going out to lunch and CLOTHES can be eliminated completely.

    I spend about $100 once every three years on clothes.

    Try going to Thrift shops to buy clothes instead.

    As far as luncheons….. that is a luxury that should only come after getting out of debt.

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