Every family should have a monthly budget. A budget helps to track spending, set financial goals, and save money. But not all budgets are created equal. Whether you use budgeting software or create your own spreadsheet, there are some essential categories that must be included in a good budget.
Set Monthly Expenses
Non-discretionary spending is anything with a fixed monthly payment. These are the easiest type of expenses to include in your monthly budget. Some examples of set monthly expenses are:
- Mortgage or rent payments
- Certain utilities like phone, cable, and Internet
- Premiums for car, life, home, and medical insurance
- Regular fees or membership dues for clubs, organizations, school, fitness centers, and so on
If any of these set expenses are paid annually or biannually, it's a good idea to figure out how much you pay per month and include that amount in your budget.
Variable Monthly Expenses
Some expenditures come every month, but the amount spent varies. Some examples are:
- Utilities like electricity, gas, and water
- Cell phone bills
- Regular charitable contributions or church tithing
Looking at past bills can help you estimate how much you might spend this month on each expense.
Grocery Spending
Accurately tracking family grocery spending is essential to budgeting. Most people hugely underestimate how much they spend on food. Why? Because most families only remember what they spend on major shopping trips, forgetting to factor in any food items bought at non-grocery stores and the few "quick" trips to the grocery store to pick up items midweek. Remember that without real accuracy, a budget is useless.
Household Necessities
Any budget worth its salt will have a separate category for household items like laundry detergent, cleaning supplies, toothpaste, and so on. The "grocery spending" category should not include any non-food items, even if you buy them at the grocery store. Remember that this category is for necessities only. Deodorant and toilet paper belong in this category; magazines bought at the check-out counter do not. It's a good idea to include an "other" section in your budget for non-essential purchases. In other words, this category is for "needs" and you can create a separate category for "wants."
Gas Money
Fuel is a relatively easy expense to track, especially if you pay with a credit card at the pump. Save your receipt or use your credit card statement to record your gasoline spending on your monthly budget. Just make sure that you include gas bought by other household members for each vehicle you own.
Medical Expenses
Families with older or grown children may not need a specific category for infrequent medical expenses, but most families with young children find themselves at the doctor's office a lot. Costs for regular vaccinations, prescription medications for ear infections and strep throats, and visits to the doctor with colds and coughs add up. Younger children also have more frequent well checkups, which means more frequent co-pays. If you have young children at home, it's a good idea to set aside some money each month for these medical related expenses.
Children's Needs
Kids take up a substantial part of the average family's budget. This category should include any child-related expense such as:
- diapers
- clothing and shoes
- extra-curricular activity fees and equipment
- toys, games, craft supplies
Entertainment Budget
Parents need a break to reconnect with each other, but it doesn't usually happen unless it's specifically budgeted for. Think of this as the "date night" portion of the budget. Eating out, going to the movies, or buying concert and event tickets would all fall into this category. Kid-centered family events like bowling or Chuck E. Cheese belong in the "children's needs" category of the budget.
These are the basic components of an effective household budget, but each family should feel free to add new categories to personalize their budget. After creating a budget that works for you, it's time to start using it to monitor and manage your spending.
For more information on how to make and use a personal budget for money management, read "Creating a Personal or Family Budget" and "Reaching Financial Goals by Budgeting".
