Creating a Household Budget

One of the processes that strikes fear into the heart of many couples is creating a household budget. It sounds daunting, but the creation of a household budget is actually pretty logical. It is also an important step in understanding where your money goes, as well as how to find ways to save money each month. Budgeting is very important if you ever hope to buy a house. But most importantly, a budget helps you to understand your financial situation and learn how to control it. It's the tweaking and sticking to it that's a bit more challenging.

Here are a few tips to remember before you begin:

• Take your time. Creating a budget can't be done in a rush. Plan a couple of hours at least for the first time, and try to be rather undisturbed by the phone or visitors so you can focus on the task.
• Do this together. You're planning to follow it together, so it's important that you both have input in the budget's creation. Whether or not you both work, you both spend money so it's important for you both to understand the ins and outs of it and be on board with the plan.
• Plan to readjust in the coming months. Budgets take some tweaking, and both income and expenses can change. A car can need repair, a new opportunity can arise. You can't be rigid about this. Just do your best to start, and plan to review the budget to see where adjustments need to be made over the next few months.

Beginning the process: make two lists
The first list you should generate is of all incoming money you receive a typical month. List paychecks, tips and irregular sources of income, if the last can be estimated. Add these items together to arrive at a total. Also make separate note of savings, which should be viewed as a cushion or emergency fund.

The second list includes your expenses during the same typical month. List all expenses during one month that are paid on a regular basis: rent, mortgage payments, utilities, car payments, insurance, credit card payments, childcare costs, gas, groceries, cell phone bills, internet, cable or satellite TV, clothing, medical needs and entertainment. Try to incorporate a fixed amount of money that will go directly into a savings account each monthwork in a fixed amount that goes right into a savings account each month.

While most expenses are fixed, some are fluid, such as groceries, clothing and entertainment. Put the fluid items in a separate area, and don't add them to the total yet. Total the fluid expenses separately.

Seeing the big picture
Now that you have your two lists, subtract the total from the list of fixed expenses from the income. Hopefully, you will be left with a positive number. Now look at the fluid expenses total. Subtract that number from the number that you had after you subtracted out the fixed expenses. If you have a positive number left, congratulations! That's the amount you can save each month, give or take a little. If it's a negative number, don't panic. The fluid expenses are adjustable. You can spend less on entertainment or clothing to make up the difference. There are also ways to save money on groceries when necessary.

This is it…or is it?
You might think that you've created your budget, but wait; you're not really done. This is a work in progress. A month from now, return to your budget and compare it to what you actually spent for each item. The fixed numbers should not be a surprise, but the fluid ones might. Do this comparison for two or three months until you get a clearer picture of the patterns of your spending.

Don't freak out
If one or both of you don't stick to the budget, don't get upset. Discuss what happened, look at whether the variation it is a large or a small one, and chat about what can be done to avoid the problem.

If the expenses that resulted in that variation is ongoing, the budget needs to be adjusted to reflect this. If it was a one time splurge, adjust the fluid expenses to accommodate it if you can and acknowledge that these things happen.

You need to be sure you are both on board with the budget plan, and that the budget is realistic. Sometimes, a partner needs to know how much he or she can have in "mad money" each month. Mad money is money that can be spent on a whim or impulsively, such as for a special dinner, a great sale, or that CD you've been wanting. For some couples, having a mad money amount helps to avoid arguments or guilt. If the amount is overspent, the budget may need adjusting, or maybe the spouse should skip mad money next month to make up the difference. Just work it out and remember that you're both human, and things come up.