5 Tips for Writing a Good Home Budget
Once I decided to become more involved with our finances and we set our family up with a plan to get out of debt, one of the first steps we had to take was to write a budget. It didn’t go so well. I made a bunch of mistakes setting up that first spreadsheet, and there was a lot of frustration over the next few months as we tried to make it work for us. Over the next year and a half, I learned a lot about crafting a budget that succeeds in my home. I’m not done learning, but here’s a few of the big stumbling blocks I can point out to you if you’re getting ready to head down the same path as us.
1. Understand the difference between a necessity and a luxury. This seems like it would be a big “duh,” but it took us a couple of tries to shave down the necessities to what was actually necessary. The list is a lot smaller than you first think. For our home it came down to these four items:
- Food – Before anything else, you and your family needs to eat. When budgeting for groceries, we try to hit a target of $2.00 per meal or less. (And less is better. Like dance around and celebrate better. Yeah, we’re those kind of people.) Also, note that eating out at a restaurant is a luxury, and should be budgeted separately from groceries.
- Utilities (Lights, Gas, Water) – The second most important thing you need to pay for is keeping the toilets flushing and the A/C on in the Summer. (We live in Southern AZ, where it hits 110 or more.) This varies from month to month, but it’s a good idea to keep your records and plan to pay about the same as you did last year, give or take 5%.
- Shelter – I know some of you would put the rent or the mortgage at the top of the list, but we don’t. It’s important to keep your home current, but if the choice is between that and eating I’m going to choose my kids’ stomachs every time. Your home should cost you a predictable amount every month. By the way, home maintenance isn’t a necessity – except when it’s an emergency, but you should have a separate fund for that.
- Transportation – Being able to get from point A to point B without concern is a necessity. For most of us, that means keeping our cars running. We budget three sub-items here: Fuel. Insurance/Fees. Maintenance. In that order. Unlike the house, car maintenance isn’t a luxury. Cars need regular oil changes. Tires wear down. You can’t afford to not have a small stack of cash set aside when a minor car repair is required.
Now, some of you might add a few more things to that list, and that’s your choice. Resist adding too much, though. Some add clothing and I can see that, but your flip-phone and television service are never going to be necessities, and (though I’m loathe to admit it) the Internet is a luxury, too.
2. Start over at the beginning of every month. This one was hard for me to accept. I kept trying to make the Super-Budget that would cover all possible expenses. After struggling, I realized these two realities.
First, it is nigh-impossible to account for every little expenditure months in advance. It’s okay to plan ahead a few months for a looming expense, but that’s it.
Second, it drives my wife crazy. Even if you find that first reality silly, because you love tinkering with your budget, try to remember the other people involved. They’re not like you. They don’t like counting pennies for every future expense. The budget has to work for them, too.
So, before any money comes in, plan a budget for just that month. Pay for your necessities. Then your other expected expenses and savings. Then decide where the remaining money needs to go, based on what’s important that month.
3. Keep it simple. The monthly budget is a vision of how your money is going to be working for you over the next few weeks. Generally speaking, people don’t buy into complex visions. So, make the goals of your budget clear. Set up some broad expense categories with well-defined boundaries. Give yourself a way to review it in a couple of minutes, so you know where you stand. Doing this will make it easier for you and others to accept and follow your budget.
4. Work together. I’ve already covered this point a bit in a previous post but it’s worth touching on again. If you’re married, you have joined your lives, your bank accounts and your debts. The budget is something you should both agree upon and hold each other accountable to. The benefits from working together are totally worth the discomfort of figuring out how to do it, so do it.
While I’m here, let me address the single people. In one way you have it easy, because you get to avoid the struggling and compromising. You write the budget, and then you spend the budget. Go you. The problem you can have is with accountability. There’s no one on board with the plan to call you out when you’re not following the plan. If you find yourself having trouble with that, take the radical step of allowing someone to hold you accountable to your budget. You don’t have to marry them, honest.
5. Be prepared for it to fail. Now, why on earth would I tell you that? Because it happens. A lot.
Your budget is written, and it looks great. For the first two weeks, everything is fine. Then it happens. That thing that you were sure was due next month is actually due this month. Your son’s field trip is today and you forgot that he needs $20 for it. And why is the water bill so freaking high? Your great plan for the month may or may not be blown, but either way you have to adjust and figure out where the extra money is coming from.
The frustration can lead to discouragement, and before it does you need to stop and change your perspective. See, when you weren’t writing a budget, things like this would cause your money to invisibly trickle away, leaving you wondering where it went as you reached for your credit card. By becoming intentional with your expenses, you discover these leaks. Take these problems and turn them into opportunities to teach yourself, and your family, better money practices.
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