By John Egan
If you’re in the same boat as millions of other Americans, one of your annual New Year’s resolutions involves money — making more money, spending less money and so forth.
One of the best ways to make sure your financial boat won’t sink is to create a household budget, whether it’s just for you or your entire family. However, according to a 2016 survey by American Consumer Credit Counseling, 43 percent of Americans don’t know the recommended spending guidelines for a household budget.
“Spending guidelines can be an important tool to help consumers plan their budgets and engage in responsible financial planning,” says Steve Trumble, president and CEO of American Consumer Credit Counseling, a nonprofit credit-counseling agency. “Budgets show exactly how much money you have, where it is being spent and can help you find ways to cut back and save.”
We reached out to personal finance specialists to gather advice on putting together — and sticking to — a household budget. Here are six of their suggestions.
Jake Serfas, lead financial strategist at financial planning firm O’Dell Winkfield Roseman & Shipp in suburban Washington, D.C., says the word “budget” frightens many people. To get over that fear, think of a budget as “just a tool designed to allow you to see what you’re spending money on and what priorities need to be taken care of first,” he says.
Typically, according to American Consumer Credit Counseling, personal finance experts recommend these spending guidelines for your household budget:
However, Peter Polson, founder of Tiller Money, a startup that provides tools for money management, points out that spending guidelines vary from person to person and household to household. For instance, he says, the budget pie for a college graduate living with his parents looks far different from the budget pie for a family of four.
But one guideline, he says, is universal: Spend less money than you make.
“Follow that one rule,” Polson says, “and you’ll make progress toward financial health and freedom.”
Serfas recommends putting budgetary needs in the right order.
“You wouldn’t build a house starting with the roof; you build a sturdy foundation first. Same is true with a budget,” he says. “The most important thing to do first is making sure your needs are taken care.”
Therefore, Serfas says, the first “layer” of your budget should be devoted to basic necessities — mortgage, rent, utilities, groceries and so on.
The next layer should consist of savings, he says. Serfas recommends socking away 10 percent of every paycheck. The best way to save money is to set up automatic deductions from your checking account into your savings account, he says.
Serfas says the third layer should be “lifestyle” expenses, such as eating out, going to a movie or taking a vacation.
“Take into consideration how much money you earn,” he says, “and what is left over after you’ve paid your bills and saved your money.”
If there’s more than one person in your household, decide who should wear the hat of chief financial officer, says Kevin Brauer, CFO of Affinity Federal Credit Union in New Jersey.
“In the same way that companies have a CFO, a family needs one, too,” Brauer says. “This person should be comfortable dealing with topics around money and be able to commit the time to handle financial planning, yearly budgeting, and monitoring bills, investments, insurance and much more.”
If you’re establishing the budget for your family, engage in an “open and honest dialogue” about the household finances, taking into consideration things like creating an emergency fund, setting aside money for college and preparing for retirement, Brauer says.
“Lay all of this out on the table to help allocate your financial budget to your current and future needs,” he says.
Assembling a household budget can be intimidating, particularly if you hate math. However, you don’t have to go it alone, as lots of free or low-cost resources are available.
Numerous tools out there can help you track your spending and keep your spending on track. The free Mint app is one of the top tools for budget management. Other tools to consider include ESPlanner Basic, GnuCash, and PearBudget. Or if you’re really brave, you can go the old-fashioned route and use a simple Excel or Google spreadsheet.
If you’re swimming in debt, it might be wise to visit with a credit counselor or financial counselor to get your finances in order. Go to the website of the National Foundation for Credit Counseling or the Association for Financial Counseling & Planning Education to find a reputable counselor in your area.
For more information about credit counseling, check out the website of the Federal Trade Commission.
John Egan is a personal finance writer who has written extensively for publications such as BankRate, Credit Karma and Lending Tree.