We should all be more careful about our household budgets nowadays. This helps us meet our daily expenses and set cash aside for emergencies. Every household should have detailed plans for their finances.
We’ll go through the reasons why you need a household budget plan. Then, we will discuss the typical household budget and the ideal one during COVID-19. We’ll include some tips for additional budgeting help.
If you don’t think you need a budget plan, think again. It provides structure to your financial decisions, enabling you to meet a specific goal. Still, you should adapt your budget plan to suit the current situation.
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Why do you need a household budget?
A budget plan allows you to be intentional with your spending. There are so many things tempting us to buy stuff every day. It’s even harder to stop due to online shopping!
Budgeting keeps people from splurging on something they don’t need. You could pause and check your budget before buying products and services.
Also, it prevents you from going deep into debt. Without a budget, you’re more likely to spend on unnecessary stuff. You’ll have less for the important things like groceries or bills.
It helps you pay off debt too. A household budget lets you have enough for the monthly payments. Pretty soon, you’ll see the unpaid balances disappear!
Moreover, it allows you to save money. After all, everyone needs an emergency fund. This will enable you to have cash when you need it. More importantly, it keeps you from using credit cards.
Finally, it helps you achieve your long-term goals. For example, it may help you get into college without student loans. A household budget helps you reach your dreams too!
The typical household budget plan
Start by getting all your financial statements in one pile. Check every nook and cranny around the house. Here are some of the ones you need:
- Bank accounts
- Credit card accounts
- Paycheck stubs
- Electronic payments
Your goal is to determine your monthly expenses. Gather at least three months worth of credit card charges and other receipts. These documents will show what makes up your monthly spending.
Get your take-home pay.
You may notice that you don’t spend a specific amount. Well, the idea is to get an overview of your spending patterns. Find out your take-home income depending on your paydays:
- Bi-weekly – If you get paid twice a week, multiply your payment amount by the number of paychecks every year (26). Then, divide the result by 12.
- Weekly – Multiply your pay by the number of weeks in a year (52). Then, divide the result by 12.
- Irregular income – Some people don’t earn a set amount regularly. Add the three months of revenue from earlier, then divide it by 3.
Separate needs and wants
We often spend a fixed amount on necessities. Bills usually charge a specific amount, so you can plan how much you need every month. Here are other examples of fixed expenses:
- Mortgage or rent
- Car insurance and payments
- Health insurance
- Utility bills
- Homeowners insurance
Meanwhile, people often spend whatever amount on stuff they like. They’re also called variable expenses as they could be as expensive as a car or a smartphone. Here are other examples:
Check the stuff you’ve bought in 3 months. See which ones are fixed or variable expenses. Then, separate them from each other. You may place them on both ends of a table.
Evaluate your income and expenses
Get your calculator ready for this bit. Add your sources of income and monthly expenses separately. Get the net income by subtracting the take-home income total from the costs.
You may find that your finances are in much better shape than you thought. On the other hand, you might be surprised that you’re spending too much of your monthly income.
Don’t worry, though. You just took the most crucial step in planning a household budget. Hopefully, you got a sense of how to spend every day properly.
Follow the 50/30/20 rule.
Now it’s time to get specific with your household budget plan. Financial advisors often recommend following the 50/30/20 rule to their clients.
Half of 50% of your income is for needs. For debt and savings, use 20%. You’re free to spend the remaining 30% on stuff you like. If you lack funds for needs or obligations, use the 30% on them.
Place the 20% on your savings account. Spending saved cash should only be used for emergencies. Make sure it could last you for three months at least.
Household budget plan during COVID-19
The pandemic caused an unprecedented recession across the globe. People worldwide lost their jobs, businesses, and even their homes.
Worse, other events exacerbate the situation in certain countries. For example, the US Colonial PIpeline stopped operations on May 7 due to a cyberattack.
This caused gas shortages across the nation. It’s expected to increase the price of fuel and other commodities drastically. The Department of Energy even released an advisory in response.
If you’re struggling due to the pandemic, you’ll need to adjust your budget plan. For example, the 30% from the 50/30/20 rule may need to cover debts and needs instead.
You’ll need more emergency funds. There’s no telling what else could happen. You need to be prepared just in case. That’s why you should have an amount for six months instead of 3.
Those who had savings before the pandemic dealt with it better than those who didn’t. You could also prepare for the future by saving for retirement.
A different household budget plan could help. It’s called the 50/15/5 rule. Half still goes toward expenses. However, 15% goes for retirement, and 5% is for emergency funds.
You may want to get life insurance as well. This also helps you in the future. Check several insurance quotes before choosing a plan.
If you’re having trouble with planning a household budget, check the internet. You’ll find lots of resources that could teach more about personal finances.
You’ll find numerous budget worksheets online. These could help neatly organize your budget. A quick Google search will show you lots of free downloadable templates.
Your household budget plan could help you earn a good credit score. Use it to pay your debts on time. Eventually, your diligent payments could raise your credit rating.
A budget isn’t a burden. It’s your way of taking control of your finances. This could help you gather the funds you need for your long-term goals.
Learn more about planning your household budget
What should be included in a household budget?
It should have a rundown of your monthly expenses. Then, it must show how much you have after deducting them from your income.
What are monthly household expenses?
They should include the stuff you need like groceries and utilities. Also, it must show your monthly income and the remaining amount after expenses.
What is the 50/30/20 budget rule?
It’s a way of planning a household budget. Half of your income should go to necessities. Savings and debt get 20%. You may spend 30% on stuff you like.