Managing your everyday expenses as part of a household can sometimes get complicated. Your finances have been on track, say, but then a frigid winter arrives and sends your heating bill soaring. Or you suddenly have to account for a new sofa purchase and realize you’re perilously close to overdrafting.
Wrangling one’s cash flow and meeting financial goals can be simpler (and often less stressful) if you have a home budget, which is a method of tracking and managing your money as it comes in and goes out. Creating a realistic household budget can help you find the right balance. Learn the ropes of creating your own home budget here.
Key Points
• A household budget helps manage money by tracking income and expenses, aiding in financial goal achievement.
• There are different budgeting methods to choose among, such as the 50/30/20 rule or envelope method.
• One of the first steps is to identify all household expenses, including housing, food, utilities, and transportation, to create an accurate budget.
• Tools like bank dashboards or apps to track spending and adjust the budget can be used as needed.
• It’s wise to regularly review and tweak the home budget to accommodate changes in expenses or financial goals.
How to Create a Household Budget
A household or home budget is a plan for how you will utilize the money coming in to cover expenses and savings goals. It typically covers one month at a time, but it can be smart to tweak it to reflect how spending varies over the year. Here are the steps that can help you create a flexible, helpful household budget.
Have a partner? Collaborate on your household budget together so you can be aligned on your financial management, which may mean keeping some aspects of your money separate (say, you might have one shared pool of money and also each have your own checking account as well). And if you have roommates, a household budget can help you identify and divvy up shared expenses appropriately.
1. Choose an Ideal Budget for the Household
A vital first step for creating a household budget is picking a good system. There are many ways to budget, and the right one is the one that works for your personal money style and financial goals. It can be helpful to review some of the options such as:
• The 50/30/20 budget rule: With this popular system, you divide your take-home earnings as follows. Half or 50% is allocated for the needs in life; food, shelter, health care, minimum debt payments, and the like. Then, 30% goes toward wants: dining out, vanilla lattes to go, entertainment, travel, and fun purchases. The last 20%? That’s for savings or additional debt payments.
• The envelope budgeting method: With this technique, you think about the different categories of spending in your household and create an envelope for each with the amount of money needed per month in it. Then, each month, you use those funds to pay your bills. So if you have an envelope with $100 in it for dining out and use it all up on the 15th of the month, that’s it! You stop spending in that category or else borrow from a different envelope that has excess funds.
• The zero-sum budget: With this budget, every dollar has a job to do. The goal is to spend each dollar (and that can mean applying some to, say, building an emergency fund in a savings account.
It’s often wise to review a few different budget methods (you can likely find more online), and pick what looks like the right fit. It may be great, or you may want to pivot and try something else. Or create your own home budget method that uses the best of various techniques. Trial and error can be a valuable part of the process as you find a system that works for you.
2. Identify All Household Expenses
An integral part of almost any household budget will be accounting for your expenses. Many people are well aware of exactly how much money they earn (which is also an important component of a budget), but expenses can be variable and somewhat hard to capture.
While not an exhaustive list, here are some typical ones to note. You can tally up how each category tracks for a few months, and then divide by the number of months to get an appropriate sum for your budget.
• Housing: This category can include rent or mortgage payments and property taxes. If you are a homeowner, you may have various infrastructure expenses, such as annual HVAC inspections and the like. Don’t forget about your renters or homeowners insurance either. Need a new mattress? That can land in this category, too.
• Food: It can make sense here to consider how much you spend on groceries in one bucket and dining out (which includes things like wine with colleagues after work) in another.
• Entertainment: This can include books, movie tickets, streaming platforms, sports events, concerts, plays, downloaded music or e-books, and the like.
• Utilities: Here’s where you account for heating and cooling costs, phone, wifi, and other expenses that keep your household connected and comfortable.
• Transportation: This may include a mix of car payments, auto insurance, gas costs, public transportation, rideshare payments, and other expenses.
• Clothing: With this category, you may want to divide expenses up into necessary expenditures (a new winter coat) and fun purchases, such as an outfit to wear to a holiday party. This can help you determine how much to spend on needs vs. wants.
• Debt payments: Make sure to include such expenses as credit card payments, student loans, car payments, and the like.
As you consider your spending, don’t forget about those annual or somewhat random expenses that crop up, such as money for the holiday party you always host or gutter cleaning every year.
You’ll want to do your best to accommodate those expenses. If you don’t budget for them, you could wind up dipping into savings or adding to any credit card debt you are carrying.
3. Get the Right Tools to Track Your Expenses
Budgets involve accounting for expenses vs. your income. After reviewing at least a few months’ worth of expenses, you’ll be creating guidelines for spending vs. your income. You can chart different expenditure categories and see how much you can allocate toward them and where you can make some cuts. You might focus on lowering spending on, say, dining out so you can put more money toward debt repayment or rising property taxes.
To help you with this, you may also want to select the right tools to help you track your expenses as monthly variations can impact on your financial standing. A few options:
• A good place to start can be to check out the tools your financial institution offers. Many traditional and online banks have dashboards, trackers, alerts, and other ways to monitor (and then adjust) your spending.
• Another option is to try third-party tools available online and as apps. These can be free or may involve a fee for premium features.
• For some people, setting up a budget in Excel works well. This can involve logging your expenses regularly to see how you’re tracking.
• For others, the right tools could simply be a dedicated notebook and colored pens or an accordion folder to keep receipts.
These tools can help motivate you to dive in, similar to the way buying back-to-school supplies used to get you psyched up for the start of classes. They can keep you engaged as you work with the guardrails your budget provides.
Recommended: 50/30/20 Budget Calculator
4. Monitor and Change Your Budget As Needed
Setting up a budget is all about having a framework for managing your money. It helps you keep spending in check and achieve your financial goals. A few points to note as you live with a household budget:
• It often takes tweaking to get your budget balanced. For instance, when inflation is surging, you may find expenses like groceries, gas, and utilities rising. You might have to trim elsewhere to keep your budget humming nicely along. Or life happens: Your sister gets engaged, and you run out and buy her a great gift that requires some budget retooling.
• It can be wise to check in with your budget every week or so to see how you’re tracking and make any changes needed. For instance, if your rent goes up when you renew your lease, you might find a lower-priced health insurance and be able to rebalance your household budget.
• If you discover that you’ve made your home budget too intricate and are avoiding it for any reason, switch to a different system.
At the end of the day, how to set up a household budget is about making your money work for you, so that you can spend it on the things (and people) you love. Make changes as you see fit. Flexibility in a budget is important to its success. If you find that you are having a hard time sticking to your budget, you might decide to work with a financial counselor to help you with professional advice.
Recommended: 10 Most Common Budgeting Mistakes
The Takeaway
Creating a household budget can be a good way to monitor your earnings and expenses. The process typically involves picking a budgeting method, accounting for expenses (such as utilities and food costs), using tools to track your spending, and then adjusting your budget as needed. Developing a household budget can be a path to managing your money better and meeting your financial goals.
FAQ
What is the 50/30/20 budget rule?
This popular budget technique involves allocating 50% of one’s take-home pay to the needs of life (such as food, shelter, transportation), 30% to the wants of life (fun spending on dining out, entertainment, and more), and 20% to savings or additional debt payments.
How do you start a household budget?
To start a household budget, a person can pick a budgeting method and then allocate their earnings toward expenses each month. Tracking one’s spending and working toward goals (such as an emergency fund) can be an important part of the process.
What is usually the biggest household expense?
For most Americans, the biggest household expense is housing. Research shows that this can typically account for 33% or more of the average person’s spending, and that figure can soar higher in certain areas, such as major cities.
SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
This content is provided for informational and educational purposes only and should not be construed as financial advice.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.
SOBNK-Q424-065