Whether you live paycheck to paycheck or pinch pennies and save like crazy, it's always a good idea to have a household budget. Here's how to set up a standard budget and stick to it.

1. First, decide what you'd like to achieve through setting up a budget. Do you to pay off your car loan? Quit your job? Have a baby? Save for a vacation? Build your savings account? Having a goal to work toward helps you make wise spending choices when you're faced with temptation. Every time you want to stray from the budget, ask yourself, "Would I rather go out to eat or go on that European vacation next year?" It might sound overly dramatic, but reminding yourself of the positive things you're saving for keeps things in perspective.

2. Put your budget in writing. Write down your entire monthly income and all of your expenses. Money left over after all required expenses (mortgage/rent, utilities, groceries, etc.) should be spread out over smaller categories that cover every possible expense. A list of categories might look something like this:

  • Mortgage or rent
  • Utilities (electric, gas, water)
  • Gas for vehicles
  • Internet and Cable
  • Cell phones
  • Groceries
  • Monthly services (pest control, lawn care)
  • Childcare
  • Medications
  • Entertainment (dining out, movies)
  • Clothing
  • Individual spending money (pocket money)
  • Misc. (for incidentals like postage, gifts)

You might have completely different categories, but this is a good example of an average family's expenses. Every dollar should be accounted for within these categories. How much goes into each category is entirely up to you. Is entertainment more important than clothing? This is also a good opportunity to look at how much you're actually spending each month on things that might not matter that much. If there are any categories you can get rid of, go for it! For example, many people are getting rid of cable these days and watching their favorite TV shows through online providers. The beauty of the budget is that it's highly customizable and can be adjusted anytime.

3. Use whatever method works for you. One of our favorites is the envelope system. Label one envelope for each category in your budget. Each time you get paid, divide cash among the envelopes according to the budget. This makes a much better visual than a standard bank ledger. Whenever an envelope is empty, that category is out of cash until you get paid again.

4. Use direct deposit wisely. Saving is much easier if you never see the money in the first place. Instead of transferring money from checking to savings every time you get paid, have your employer divide your check between the two. For example, $2,000 per paycheck goes into checking, and whatever's left over goes straight into savings. Your savings account will build exponentially, and you won't even feel the difference.

5. Adjust the budget as needed. You'll need to account for occasions like Christmas and birthdays ahead of time.

6. Realize that a budget is based on trial and error. You won't get it right the first time. (If you do, please tell us how you did it!) But if you keep at it and have a common goal to work toward, sticking to a household budget will become second nature.

What are your best tips for creating a household budgets? Tell us in the comments section below!



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