How to Set Up a Household Budget

Once you have an investment plan in place it is necessary to find a way to fund the plan.  Budgeting and planning are just math and mechanics that anyone can do,  but actually following the plan requires discipline and motivation.  This is where will power and determination will decide whether you reach you investment goals or fall short and be like everybody else.  This is similar to following an exercise plan.  Just as there will always be a little voice inside of you trying to keep you on the couch (and plenty of “friends” giving you every excuse in the book not to take that run), things will always come up that will make you want to deviate from the plan.  Here are some tricks to help keep you on track:

Most people think they can just control their spending without budgeting. People fear being constrained and being told what they can spend, even if it is just a sheet of paper telling them.  They also don’t want the hassle of figuring out their income and expenses and then keeping track.

Using a weight loss analogy again, most people will also think that they can lose weight without counting calories.  The trouble is that without looking into how many calories are actually in the foods you are eating you may have what you think is a little snack or just a few sodas you have during the day and really be doubling the number of calories you are eating.  Sometimes it is not the entrée but the sides that are adding all of the calories.

Most of the trouble in finding money to save and invest isn’t the big items like the home mortgage.  It is the regular latte after work or the snacks bought at the convenience store.  It is going out for dinner because you don’t feel like cooking and the junk you are buying at Wal-Mart that you didn’t plan to buy.  The fact is, most people who start budgeting actually start to feel more wealthy because they find all of the money that is getting sucked away that they don’t even know they are spending.

The easiest way to start to budget is to budget monthly.  Start by listing all income for the month along with bank account balances. This is your income and your storage of money.  Then, list all of your must fund expenses – your mortgage, car payments, etc…. Don’t forget utilities, gasoline, and insurance bills coming due.

Next, decide on an amount of “blow money” that you each will receive. This is money you will receive in cash that you can spend however you wish without worrying about it.  A sum like $100 each is a good start.

Sum these expenses and then subtract from your income.  Hopefully this will be a positive number, meaning that you are making more than you need to pay your minimal expenses.

Next, think of necessary but flexible expenses you have like clothing, yard and home maintenance, etc….  Decide which of these expenses are needed for the month and add these to the total expenses.  Also decide how large a budget you need for the month for food, toiletries and household items, and add these items to your total expenses. Subtract from income once again.

Hopefully you will still have a positive number.  Add this to your savings account balance (or subtract it if you are spending more than you are taking in for the month).  This is the amount you expect to have saved by the end of the month.

Congratulations – you now have a budget.

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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

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