Household budget tips

When my wife and I first put together our household budget, we had a rough time. I was a bit of a budgeting nerd back then, and I went absolutely crazy with the budget categories. I had a category for Groceries, and then about ten subcategories. Madness, I tell you. That's okay, though, because I've gotten better, and I've learned a few things about the old household budget process, too.

Tip #1 - The fewer budget categories, the better (within reason). I suggest the following categories, adjusted to fit your situation:

• Tithing / charitable contributions
• Retirement savings
• Long-term savings (i.e. for a house down payment)
• Short-term savings (for a major purchase other than a house)
• His and her "fun money" categories, to be spent on whatever you want
• Date money or fun money for both of us
• Monthly bills (one category for each, or lump them all together)
• Car repairs
• Clothing

We use Groceries as the catch-all category for whatever doesn't fit into its own category, or something that's a unique expenditure. That seems to work better than making a category that you don't use more than once or twice a year.

Tip #2 - Save in advance for upcoming purchases. If you know that you'll have to pay a registration fee on your car once a year, set aside 1/12 of that amount each month. So, instead of a $120 payment that throws your budget out of whack once a year, you have a $10 payment each month. As "responsible adults", it seems like more people should be using this method to make things easier on themselves.

Tip #3 - Pay yourself back if you go over budget. If you overspend by $100 one month, take that $100 out of the "available amount" for next month's budget before you do anything else. As I often say to my wife, "That money has to come from somewhere." Make sure that it's coming from money you've already earned, and not from credit card debt.

Tip #4 - Make or invest in a budgeting system that works. I tried to make my own system with Excel, and I tried Microsoft Money. The first was a waste of my time, and the second was overly complicated. Here's a review of Mvelopes Personal and a review of YNAB (You Need A Budget), which are among the few budgeting systems that I recommend. Pick whichever suits you, or find another household budget system that somebody uses and recommends. However you do it, find something you can stick with and enjoy.

Tip #5 - Be consistent. Whatever household budgeting system you choose, stick with it and do it consistently. The on-again, off-again approach just doesn't work. Don't tell yourself that "you'll get around to it", because you won't. Sit down and hammer out the budget on the first day of every month. Record your purchases at least once a week. Check your bank and credit card statements for unrecorded (or unauthorized!) purchases at least once a month.

I tell all my friends about how much our budgeting habit has helped us. We've gone from having to take out student loans to where we now have a comfortable amount of savings, and we've even got our retirement savings on track. If you think budgeting is more trouble than it's worth, you're wrong - it's absolutely priceless!