What is a home budget?

A home budget is a spending plan that accounts for income and expenditures for a household. It helps households allocate money for certain expenses, save for financial goals and identify areas where spending can be reduced.

For example, if you live with a spouse and you both earn income, your combined take-home pay (or disposable income) would be included in your home budget. From there, you could allocate money for your individual expenses as well as your shared expenses and see how much money you have left over. Any money left over is your discretionary income.

How to make a home budget

Whether you’re navigating life with your significant other, splitting costs with roommates or focusing on your personal financial goals, budgeting is key to understanding where your money is going.

Here’s how to create and manage a home budget.

1. Pick a budgeting method

There are a number of ways to create a budget that works for your individual needs. Here are a few of the most popular budgeting methods.

  • 50/30/20 budgeting rule: With this method, you would allocate your household income into three sections: 50 percent to needs, 30 percent to wants and 20 percent to savings. This strategy is an easy framework to follow, but it may not work for people with low or high incomes, or people who live in areas with high-cost housing.
  • Zero-based budget: With this method, the goal is to allocate every dollar of your household income so that your income minus expenditures equals $0 at the end of the month. That way, if you have $100 left over, you have to allocate it to something, such as paying down debt.
  • Envelope budget: With this method, you create a standard budget. Once you’ve identified your expenditures, you take out cash for each expense and put the money into separate envelopes. Because most expenses aren’t paid with cash, a variation of the envelope budget is simply to keep a running electronic tally of expenses within each envelope.

The budget you choose ultimately depends on your financial priorities and personal preferences. Take time to find out which approach works best for you, and make tweaks to each to fit them to your specific household needs. You can also use Bankrate’s Home Budget Calculator to get a head-start on creating a budget.

2. Track your household purchases

Gather information from everyone in your household to account for all of your living costs. Apart from keeping track of your expenses, give yourself room in your home budget for unique, non-recurring circumstances that you haven’t budgeted. Items such as expensive car fixes, home repairs and tutoring services for your children may require a higher bump on your list of financial priorities. Consider sitting down with members in your household to discuss family expenditures.

3. Write everything down

Documenting your home budget in a spreadsheet or a budgeting app will allow you to visualize your spending and savings. Find a template online that can tailor your financial needs into a practical application. If you want to make your own, Google Sheets, an Excel document or even putting pen to paper in a notebook will work.

You can also sign up for Bankrate’s myMoney tool to categorize your spending transactions, identify ways to cut back and improve your financial health.

4. Continue to supervise spending

Consistently monitor your income and spending, and revisit your budgeting strategy to make sure it’s helping you meet your goals. Unexpected events and expenses are a part of life, so give yourself the flexibility to re-evaluate and adjust your budget as circumstances evolve.