Steps to organize a monthly household budget

Many working Canadians are pretty eager for the first and 15th of each month to roll around when a paycheque trickles into their bank account. But the fruits of your labours can deplete quickly between bills, groceries and unforeseen expenses each month. According to a 2009 study from Utah State University, money-related tensions are one of the top-cited reasons for divorce.

So what’s the best way to save your sanity and combat the empty-bank-account blues? Personal finance experts recommend building a household budget to monitor where your money goes each month. Reviewing your finances on a frequent basis can also assist in putting away more money to pay down debts, build a retirement fund or accomplish short-term goals such as taking that trip to Hawaii you’ve planned all winter.

Fixed versus variable expenses
Drafting a household budget only requires a pen and paper, but it’s easy to create a household expenses spreadsheet in a program like Microsoft Excel. Take advantage of the innumerable budgeting worksheets available for free on the Web or use online software such as Mint to keep track of your spending, saving and account balances in real time.

One of the initial steps is to sit down with your partner and establish all your known expenses each month. First, focus on what are deemed “fixed” expenses – the bills you have every month that never change. These can include a mortgage or rent payment, a car note, an insurance bill and any credit card or debt payments. Make a list of all the fixed expenses and the amount you pay for each to establish a financial baseline.

Once you’ve covered all your fixed calculations, consider the variable monthly costs – the expenses that change each month or aren’t due on a monthly basis. Some examples are utilities, groceries, clothing, entertainment and car maintenance costs. If you have trouble coming up with all your incidental expenses, track your bank accounts online. Users can view the specifics of each transaction, including the specific amount and the company or entity receiving the payment.

Now fill in your take-home household income. The easiest way to locate that specific number is to take a look at your most recent pay stub, which will list your take-home or net pay after taxes and contributions are deducted. Once you’ve reviewed your income and all your various expenses, do the numbers add up? Are you spending more than you’re bringing in? If you need a little more financial breathing room, it’s now much easier to look down your list of expenses to find corners to cut.

Establish financial goals
Now that you’ve really crunched the numbers, it’s easier to establish financial goals for your household. Do you need to pay down credit card debt? Once you know where your money is going, you can shuffle your priorities to funnel extra funds to that credit card payment and pay debt down faster to avoid those interest fees. The same applies if you’d like to save up for a vacation, buy a new car, etc.

In your budget, establish specific limits for your variable expenses. Do you spend too much on entertainment each month? Set a reasonable limit for each category and stick to it. CNN Money recommends percentages of your income for your various expenses, such as setting aside four per cent for insurance and two per cent for transportation costs. But make sure you allocate money for more than just the bare basics – you realistically will want to eat out at least once a month or see a movie one Saturday night. Leaving out expenses such as entertainment and clothing, which can seem like obvious areas to make cuts, makes it more difficult to follow your budget and give up on the whole enterprise out of frustration.

Now that you’ve put together your budget outline, the most important rule is to stick to it! Budgeting may seem like drudgery, but it ensures you’re spending your money in all the right places.