In trying to set-up a household budget, sometimes people make it too complicated, they make it harder than what it really needs to be. So here is a relatively simple way to set-up a household budget, we will get into a more accurate budgeting tool called a spending plan later on.
The obvious, listing all your income, such as wages, any tax credit, benefits, etc you may receive; how much money do you have coming in each month.
Next, listing your monthly expenses; but these need to be categorised and prioritised in an order of what/who to pay.
In listing your monthly expenses you can break them down into the following categories:
Fixed monthly expenses: these would be your rent or mortgage, council tax, any car loans or other secured debt payments. This can also include insurance payments for a car, life insurance, private health insurance, etc. Also, any child maintenance you must pay and of course your TV licence if applicable.
Variable monthly expenses: these is a much larger category and can be difficult to list all you may need to pay, that is why a spending plan we will set-up later is crucial here. These expenses can be food, petrol, household cleaning items, toiletries, clothes, alcohol, tobacco, pocket money to kids, school lunches (although these may be a fixed expenses depending on how you pay each month), mobile phone (although this can be a fixed expenses as well), gas, electricity, etc.
Debt – unsecured: these are debts such as credit card payments, overdrafts (although you need to be careful with these as the bank may take their money as soon as your wages go in), any other unsecured debts.
Basically the order in which you pay these monthly expenses is the order you see above. Your fixed monthly expenses and priority secured debts are paid first, then you pay your variable expenses and what is left is for unsecured debts.
Of course for many of us, we may not have enough money to cover all our expenses, and that is where we juggle, or borrow from one place to pay another, or use savings, or use credit, all of which one day will bring us to a financial day of reckoning.
But this gives you an overview of setting-up a basic budget, seeing the numbers and how things are. The issue is that many of the variable expenses are just that variable, they change from month-to-month, and that is where tracking your monthly spending and setting up a spending plan is essential.