Learn Budgeting 101 How to Create a Household Budget?

How to Create a Household Budget?

What is a Household Budget? A household budget is a financial plan that compares your monthly and yearly income against your expenses. Household expenses are necessary for daily living, including housing, utilities, transportation, food, and others.

A monthly household budget is essential to understanding your spending patterns and ensuring you are not overspending on any household expenses each month. It requires you to break down your expenses into different categories.

While it can be a time-consuming task, it will save you time and – more importantly – money in the long run. Not only that but having a budget that you stick to every month can relieve the stress of worrying about finances.

Creating a plan for your household and living expenses eliminates the stress of payments because now you’ll know the percentage of your monthly income each takes and can allocate some for savings, debt payments, and recreation. The questions “will I be able to pay my bills?” or “can I afford to do that?” will no longer be as prevalent – your outlined budget will tell you.

4 Steps to Creating a Household Budget Efficiently

Setting up a family budget can seem like a daunting task, and you may be wondering how to set up a monthly household budget effectively – no one wants to spend time building a house budget they’re not going to stick to. Here are a few tips and ideas to get you started:

Step #1 Have a goal in mind

Maybe you want to get your debt paid off within a certain timeframe, budget for college, or save up for that trip you’ve always dreamed of – write down your goals when you start to outline your budget and keep them in mind as you work.

Your goals will offer you an inspiration to not only create your budget but to stick to it. Paying your debts, attending college, or taking a trip is the prize you give yourself when you meet your budgeting goals and allocate enough money to do these things.

Not only that, but having these goals means they’ll be incorporated into your budget, so enjoying the payoff will be stress-free because you know you’re not spending money that should be going towards rent or utilities!

Step #2 Map out your income

Write down your yearly, monthly, and even weekly income to determine how much you should be spending on certain things within that time frame. This will help you determine what percentage you should or can put towards certain expenses.

You can use resources such as a monthly household budget calculator, a monthly household bills calculator, or a free household budget app to help you evaluate your income to expenses.

Step #3 Calculate your household expenses

Adding up your household expenses per month and comparing them to your monthly income can help you determine your excess or deficit within a timeframe.

Keeping this in mind will help you set up a budget accordingly and ensure you’re on the right track as you determine how your monthly income will be dispersed across your expenses and how much you want leftover to go towards savings or debt payments.

Step #4 Determine your net income

Your net income is the total amount you earned within a period, minus your expenses – it allows you to measure your profitability.

This is incredibly helpful when creating your budget; maybe you want to put money aside in a college fund or pay ahead on your new car. Your net income will determine how much money you have to put towards those things.

How Much Should I allocate for Living Expenses?

Some online resources outline a good start to planning your budget and setting spending goals every month. The Credit Counselling Society breaks down monthly spending by category and outlines what each class includes.

This is the recommended monthly budget for the average Canadian household:

● 35% of monthly income spent on housing: including mortgage or rent, taxes, strata, hydro, and insurance.
● 5% on utilities: including phone, cell phone, gas, cable, and internet.
● 10 – 20% on food
● 15 – 20% on transportation: including public transportation (bus, taxi) or personal vehicle fuel, insurance, maintenance, and parking.
● Clothing – 3 – 5%: this includes all members of the family
● Medical – 3%: including health care premiums, specialists, and over-the-counter products
● Personal and Discretionary – 5 – 10%: including entertainment, recreation, education, tobacco/alcohol, eating out, gaming, haircuts, hobbies, and another miscellaneous spending.
● Savings – 5 – 10%: this money will go toward expenses that don’t occur every month, as well as your future – this ensures you have a little available when you need it
● Debt Payments – 5 – 15%: many people find their budget is tight when their monthly debt payments are close to 23% of their net income. It’s better to keep these payments smaller on a month-to-month basis.

This breakdown of living expenses should act as a good household budget template and give you an idea of what an effective monthly spending plan looks like. It should help you in the creation of your monthly household or family budget.

Pie chart showing recommended living expenses by category

Source: Credit Counselling Society

8 Tips for Sticking to Your Family Budget

Making a budget is one thing – sticking with it and developing your money management skills is another. It will not be flawless on your first try – that’s okay! Like anything else, creating and maintaining an effective household budget takes practice. Committing yourself to create a family budget is a success in and of itself.

Here are a few tips for maintaining an effective budget:

1. Cut non-essential expenses

If after you subtract your spending from your income, you are left with a negative number, it means you’ve got to make some changes. Cutting back or eliminating personal or leisurely purchases and activities is the place to start.

It’s not easy – but it’s only temporary. Use the money you would typically put towards these activities or purchases to pay off debt and get that income number into the positives. Once your debt is paid off or significantly reduced, you can resume spending some money on these things again.

2. Review and adjust your budget regularly

Did you get a new pet? Did your child get their drivers’ license or take up a new sport? These things cost money you’ll have to add to your budget. Adjusting your budget to include even what may seem like small changes will make sure you stay on the right path.

Reviewing your budget regularly – on a weekly or monthly basis – allows you always to know how well you’re working towards your goals, if anything is included that shouldn’t be, or if something needs to be added you didn’t consider. A budget is not set in stone – it changes as you and your family change.

3. Control what you spend on food

Creating a grocery budget and a list before hitting the store will help you buy only the necessities. Monitor what favorite products are on sale, and use this as an advantage to cut back what you regularly spend on food. It may not seem like you’re saving much every trip to the store, but it adds up!

4. Give yourself a weekly allowance

Just as you give your kids an allowance with the idea that “once it’s gone, it’s gone,” this is a good rule to follow yourself. Give yourself a maximum amount to spend on unnecessary things each week, such as dining out or personal care products. This will allow you to treat yourself to some small amenities without building resentment against your restricted budget and splurging later.

5. Keep your receipts and review them weekly

Keeping track of your receipts will help you have an honest view of your spending. Sorting through any receipts in your pockets or purse at the end of the day and reviewing them every week will teach you things about your spending habits you may not already realize.

6. Overestimate necessary expenses

Adding 10% to your estimate of expenses gives you a good safety margin. Necessary expenses to do this include food, electricity, water, transportation, and insurance. That way, if you spend a little more on these things than you anticipated, you’re still within your budget.

7. Use household budgeting tools to monitor your spending

Using online tools or a spreadsheet, even something as simple as Google Sheets will help you monitor your spending and track changes. If you keep up with it – entering receipts, credit card bills, mortgage payments, and other living expenses – will ensure your budget accurately reflects your spending and income.

8. Get the whole family involved

A budget works best when everyone is on board! Have your children help you make shopping lists and collect coupons. Encourage older kids to chip in from their paychecks and learn about keeping an effective budget.

Having everyone on the same page will ensure you stick to your outlined budget and keep it as effective as possible.

What are the Average Expenses for a Household in Canada?

A survey conducted by Statistics Canada titled “Survey of Household Spending, 2017” analyzes monthly spending by household type. These are the statistics collected via the survey on household expenditures:

The largest household expense comes from shelter - this ranges between $1,084 and $2,071 monthly, depending on the familial makeup; single person households tend to spend the least, while couples with children spend the most.

After household expenses comes transportation, ranging from $498 to $1,517 per month - once again, couples with children outspend households consisting of one person, a couple without children, and single-parent households.

Food is the next highest expense - depending on family type, the average Canadian home spends between $388 and $993 on food every month. Clothing expenses typically range between $132 and $437, and communications services - such as cell phone bills - cost between $120 and $259 every month.

Education varies significantly based on family makeup - a single person may spend, on average, $52 per month on education, and couples without children spend $81. Expenses for single-parent households are typically $165, while couples with children spend an average of $261 monthly.

Based on the survey results, single household occupants spend $3,071 per month on the above necessities while couples without children spend $5,413. Single-parent households spend $4,691 monthly, and couples with children spend $7,341.

Montly results from the survey of Household spending, 2017 in Canada.

Source: Survey of Household Spending, 2017

Key Takeaways: Household and Family Budgeting

Creating a household or family budget may seem like a daunting task – don’t let it fool you. A budget is an extremely helpful resource that allows you to track your spending, know your net income, and work towards your financial goals.

It will reduce the stress associated with finances and paying bills because you will have a clear idea of what you’re spending versus what you’re bringing in.

Many people don’t keep a budget and tend to overspend – don’t let that be you! There are plenty of free tools and online resources available to help you sort out your expenses and plan for the future.

Make sure you set goals – a college fund, a new car, paying off debts, your dream vacation – and keep them in mind, especially when budgeting gets frustrating. It takes practice – but practice makes perfect. Having a clear, effective budget will ensure you’re able to pay your bills and build up savings for fun activities or unexpected expenses down the road.

Even when you try to stick to a budget, unanticipated expenses happen. If you need some extra cash quickly, get a loan with iCASH. We offer small money loans of up to $1,500 for Canadians.