Creating a Budget for Your Family                      

If you find yourself falling behind on your monthly payments, then it’s time to start learning some of the basics of creating a budget.  The first rule of thumb for a financially sound home is simply this:

Household Income must be greater than Household Expenses

Budgeting 101, right?  You’d be surprised how many families break this simple rule.  But when you do break this rule, then you need to borrow money to pay your expenses.  That is a short-term strategy that can lead to long-term problems if it happens every month.

Pay Yourself First

Creating a Household Budget

You can create a household budget, and you’ll learn about your monthly living expenses if you do.   On the other hand, you can use a budget template that someone else has put together.  You may not learn as much, but you’ll save time.


All Income less All expenses = Cash Short or Cash Over

Monthly Income

Everyone knows where their money comes from; it’s where it goes that’s hard to track.  Any reliable source of money flowing into your household each month should be included in the income section of your budget.

Mandatory Expenses

You can think of mandatory expenses as those monthly bills that are “must pay.”  Here you would include items such as a mortgage payment, car loans or lease payments, and property taxes.  You’d also want to include expenses such as energy bills and other utilities.

You should also include life insurance, health care costs, childcare, commuting expenses, groceries, and other expenses that help you get to work and provide you with a healthy life.  Mandatory expenses are the absolute last costs you’d give up, expenses that you’d consider a requirement of running your household and daily living.

Don’t forget to put some money away for the future – that’s mandatory too.  It’s one of the fundamental rules for a sound financial planning strategy.

Discretionary Expenses

When you reach the discretionary expenses portion of your budget, this is where decisions start to get difficult.  That’s because this is the place where you really need to do some soul-searching to figure out if you need to spend money on these items.

Examples of discretionary expenses include going out to the movies, dining out at restaurants, extravagant vacations, expensive clothing, and other luxury items.  You’ll recognize this type of expense when you see one, and that brings up a good point.

Household Savings

Once you’ve identified your sources of income each month, and put together all of your expenses, it’s time to see if your budget is balancing.  At the very least, you want a balanced budget.  At the other two extremes you might be running a budget deficit or a surplus.  The formula is a simplified calculation of household savings:

Household Income – Household Expenses = Household Savings

If the value for household savings is negative, then you have a budget deficit.  If that value is zero, then your budget is balanced.  If household savings is positive, then you’re running a budget surplus, which is the sign of a “good” budget.

Evaluating a Budget

Once you create your household budget, then you need to start tracking expenses and income.  After several months, you should have a good feel for how you’re doing and where the money goes.

While it’s nice to remove the stress of falling behind on your bills, keep in mind that you need to enjoy life too.  Change your purchasing habits, or downsize your home if that’s what it takes to balance your budget.  You might be surprised with how stress-free life can be when you have your budget, and your life, in balance.