The Why and How of a Household Budget
Posted in: Personal Financial Management
Financial stress is a burden felt by people of all ages, backgrounds and professions. As a young professional, I often find myself wondering “where did my paycheck go so quickly?” According to a recent study by the American Psychological Association (APA), work, money and the economy are the biggest cause of Americans’ stress. But for financial stress, I found out there is a light at the end of the tunnel – a written household budget.
I recently had the opportunity to sit down with PSA Financial Wellness Coach and bestselling author of the book 90 Day Money Challenge, Brian Hamilton, and pick his brain about household budgeting and why it is so important. As Brian pointed out, every good business has a budget that forecasts into the future to help ensure income is greater than spending. And households should be run in the same way.
Here’s what Brian had to say:
- Why is a household budget so important?
- No one wins without a written plan and you will be amazed how powerful a monthly budget can be. Creating and sticking to a monthly budget will help you feel more secure and empowered. You will also gain a sense of hope as you begin setting and achieving your goals.
- Can you provide me with a few tips for how to put together an effective budget?
- Write it down. You wouldn’t build a house without a blueprint, so you can’t expect to build a budget without writing it all down.
- Forecast for the future vs. the past and present. Most people tend to create budgets for months that have already past instead of planning for the future. Just like the successful business that plans for the months and years ahead, a successful household should do the same.
- Balance your budget. Making a budget and sticking to it are two key different things. Balancing your budget each month is critical in creating and strengthening your financial discipline. Not only will you learn more about your spending, but knowing you’ll have to reconcile your budget come month-end, will help you make smart spending decisions throughout the month.
- Get your significant other on board. If there is more than one person in your household, you will want to set-up a budget committee meeting to make sure both partners are on the same page with the written budget. While one person may take a more active lead role in developing and keeping the budget, both partners must be onboard and understand the financial flow of the household.
- And lastly, you must understand that a successful household budget takes time. During the first month of your new written budget, issues will arise that you will need to work through. It is important to not get frustrated but rather embrace these challenges and use them to revise and improve for the next month.
- How should I maintain and update my budget?
- No month’s spending and saving will look the same, therefore every single month should have its own unique, written out budget. To help get you started, a starter budget can be downloaded for free at 90 Day Money Challenge.
And if you would like to learn more about how to set-up a household budget, go to 90 Day Money Challenge.