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Saturday, January 2, 2010

Creating a Household Spending Budget

One of the most important components of managing your money is planning how you spend it.  Spending has to be proportionate to your income, or you'll never find yourself ahead.  Understanding what you spend will reveal areas you can cut back on, to maximize savings and overall financial health.

This year is the first year my partner and I will create a household budget.  We want to be methodical and thoughtful about it, because the more accurate our budget is, the more value we will get out of it.  We thought we would start by identifying some spending categories.  Once we're satisfied we've captured everything, we will begin putting some estimated numbers in each category, aiming to stay within our estimates for the year wherever possible.
  • Home expenses - this can have sub-categories for heat, electricity, hot water heater rental and gas.  This category should include things like home maintenance, improvements, and repairs.
  • Food - will include weekly groceries and the occasional morning coffees.
  • Automobile - this can be sub-categorized into gasoline, maintenance and repairs.
  • Clothing.
  • Grooming - this will include haircuts and beauty products, such as shampoos, cleansers, creams, and the like.
  • Health - we need to account for any expenses not covered by any healthcare insurance we have.  This may include partial costs for any medications, massages and other similar items.
  • Travel and entertainment - the will be a combined category to capture leisure travel and other fun things, such as the odd movie.
  • Pet - we have a dog who needs food, toys, grooming and vet visits.
  • Incidentals - this should really only include small items that may not fall into any other category.
Once we have assigned a dollar value to each category, there will be money left over, which we will have to put towards savings and investments, and the mortgage.  While we like to make as many additional payments towards the mortgage as possible, we also feel better when we're able to have money stashed away in savings accounts, just in case we have an unexpected expense arise.

It will be interesting to see how accurate our budget turns out to be by the end of this year.  We will use actual receipts from this past year to estimate our future spending.

A great resource for learning more about all aspects of everyday finance is GetSmarterAboutMoney.ca.  This site has a section dedicated to budgeting, which is very helpful.

If you've created a household budget before, what were your most underestimated categories? We want to know, so leave your comments here.


  1. Thanks for sharing such great post, according to me budgeting doesn't mean that you have to compromise your needs but it is important for planning financial life. Household Budgeting means to create a planning for the money spending. Build emergency fund, minimize the use of credit card, planning, etc. are the tips for making personal household budgeting. For more details refer tips on budgeting

  2. Hi Urvi,
    You are right. Budgeting doesn't mean compromising - in fact, it is the opposite. Budgeting is about planning so that you can achieve your goals and live your life the way you wish. Thanks for the great link!