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How to Set up a Household Budget

How to Set up a Household Budget

Becoming aware of your financial behaviors will help you get out of debt, stay out of debt, and make your big purchase dreams come true. Whether by choice, quarantine, or a combination of the two, we’ve all adjusted our spending. Now is a great time to re-evaluate your spending to see what new behaviors you may want to continue.

Step 1: Determine your monthly income after taxes.

While this step is simple, it provides a firm number that will drive your expenditures.

Step 2: Make a list of fixed expenses:

  • Mortgage, rent, homeowner association fees
  • Utilities (gas, electric, water, and internet)
  • Insurances (home, auto, health)
  • Transportation (car payments, fuel, inspections, registrations, parking, public transportation fees)
  • Medical (medications, vitamins, doctor visits, tests, pet trips to the vet, and pet meds)
  • Taxes (county, borough, school, tax prep fees)
  • Professional membership fees
  • Credit card balances
  • Student loan payments
  • Alimony and/or child support

Step 3: Make a list of variable expenses:

  • Savings, including a separate emergency fund
  • Groceries (including pet food, litter, cage/aquarium liner, treats)
  • Clothing
  • Auto and home repairs (your budget should expect the unexpected)
  • Charitable donations
  • School supplies and photos
  • Cell phone and streaming fees
  • Entertainment and recreation (holiday dinners/celebrations, gifts, greeting cards)
  • Big-ticket items (computer, phone, or TV upgrade; a vacation; a car or house down payment;
    home improvements; future education expenses; a wedding)
Some people recommend allocating your money using the 50/20/30 rule as a guide: 50% of your income goes to necessary expenses, 20% is for savings and debt obligations, and 30% is for fun money.
 
If you need help figuring out where your money is going, give our Money Management tool in Online Banking a try! You can add all of your accounts — student loans, credit cards, other financial institution accounts — and view your complete financial picture all in one place. From there, you can set up a budget based on your spending categories, set savings goals, retirement goals, and more.

Step 4: Get buy-in from “the team.”

A household budget will only be successful if it’s a household effort. Married couples will most likely share all expenses, while couples who aren’t married may assign financial responsibilities differently. Assigning balanced responsibility based on the amount of total earnings is a fair way to divide payments. Opening a new joint checking account for shared expenses can also work for couples who aren’t married.
 
Be sure to include the kids, even if they’re too young to be spending. Teaching children to budget is one of the most important lessons they’ll learn. It teaches financial responsibility and self-discipline. Explaining your objectives early on will help them understand why they may have to choose between two more in-game skins or the new season pass this month. If you want to learn more about topics, strategies, and best practices for having family conversations about money, check out this short, interactive lesson in our Financial Education Center.

Step 5: Re-evaluate.

This is a tedious step, but it’s simple addition and subtraction.
 
Addition: Look for ways to make more money.
  • Pick-up a side gig
  • Start a blog or publish an ebook
  • Sell unwanted items or crafts online
Subtraction: Look to reduce expenses, but be realistic about changes. It’s all theoretical until you prove you can put it into practice. If there’s no way you’re going to stop drinking coffee or soda, try cutting the daily amount in half, etc. Even saving $20 a week adds up to more than $1,000 per year.
  • Downsize, if it’s an option, for big results
  • Refinance
  • Shop for better insurance and utility rates
  • Skip the drinks and dessert when dining out
  • Bank your coins
  • Consider debt consolidation             

Step 6: Stick to it.

Track your expenses as you spend, so mid-course corrections can be made. Checking at the end of the month is too late to fix overspending. Just as importantly, be patient with yourself. A study by Phillippa Lally, a health psychology researcher at the University College of London, says it takes an average of 66 days to create a new habit.
 
The key to all of this is to avoid impulse buying. The “gotta have it” item that seemed like a great idea at 1:00 a.m. can blow your budget for the month, just like an extra cake serving can blow your calorie count for the day. Try adding items to an online cart or pushing them into a “save for later” list, then wait for two weeks to see if you still want to order them. This kind of discipline helps you stay focused on what you really want.
 
Lastly, enjoy the power of being in control of your finances. When you’re on vacation, receiving your diploma, or enjoying your new TV, you can proudly say, “I made this happen!”
 
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Check out our Financial Education Center!

Access a variety of tools and tips for every stage of your financial journey. Our interactive lesson topics range from credit scores and reports and debt management to building emergency savings and 401k plans.