Preparing a Household Budget

Creating a monthly budget is the next step after deciding to buy a house. When doing this, make sure to take into consideration all costs involved in maintaining your home. Underestimating these expenses can lead to a lot of stress down the road. This can be avoided by planning and utilizing a monthly household budget.

 

A household budget should serve the following purposes:

  • knowing what price you can afford
  • seeing where you spend money
  • seeing where you can save
  • finding ways to spend less money
  • making a plan for how to spend and save your money

WHERE TO START

First begin by gathering your pay stubs, bills, and bank statements. Next, pay attention to how you spend your money outside of bills. Do you buy a daily cup of coffee? How often do you eat out in a week? What monthly subscriptions are you signed up for? What do you spend cash on? Etc.

After gathering all this information, proceed to take these actions:

  • List all current, regular, net monthly income for your household
  • Make sure to also account for all the items that are deducted from your paychecks
  • List all current monthly bills
  • List all optional spending items
  • List how much money you put into savings


REVIEW YOUR BUDGET

At the end of each month, review your expenses to see if they lined up realistically with your budget. Go back and adjust your budget accordingly. This will help you point out areas where you are spending too much and areas where you can save, making you more aware of your spending habits. Your budget will then become more accurate.

Understand these general rules of thumb:

  • After accounting for all your expenses, including savings, the difference between your projected and actual balance should be $0.00
  • If you end up with a positive number, you may want to consider allocating the extra money toward your debt and/or savings
  • If you end up with a negative number, you are spending more than you make. Review your budget thoroughly to examine where you can cut back your expenses


THE BENEFITS OF SAVING MONEY

Saving money can be difficult, especially when expenses go up and income remains the same. Having a budget can help your hold yourself accountable and become aware of how you can save money.

Listed below are a few things that are important to save money for:

  • Emergencies –No matter how good your budget is, we all have unplanned emergency expenses from time to time. 
  • Job Changes – If you must (or choose to) change jobs, you could have an income gap. This also includes your hours increasing or decreasing at your current job. You should have money set aside for times when your income lessens.
  • Expensive things – Sometimes we must pay for expensive things like appliances or major repairs. If you have money saved, you will have more freedom as to what you want to buy and you will not have to go into debt.
  • Life goals – Save and plan for your major goals and bucket list items.


BEING HOUSE POOR BECOMES EXPENSIVE

Being “house poor” means having to spend so much on household-related expenses that you have less to spend on other financial obligations. Living paycheck to paycheck increases the chances for potential late fees, deposits on utility accounts, and re-connection fees. Your credit score may also drop, causing other expenses such as car insurance to increase. You could also be charged higher interest rates on your credit cards and have your limits cut.

A few words of friendly advice:

  • Avoid using credit cards. If you must use them, pay them off as soon as possible or keep the balance below 30% of the credit limit. 
  • Pay all your bills when they are due to avoid late fees or other charges.
  • Keep savings separate from spending money.