How to Create a Household Budget in 3 Steps

How to Create a Household Budget in 3 Steps

I had fun this month talking to about my favorite tips and how I got started.  You can see the interview here.  And since it’s almost 5 years since I started this blog, it seemed like a good time to write a comprehensive post about what I think it means to budget.

A budget is a plan that helps move us toward the life we really want by aligning our day-to-day actions with our long-term hopes.

Budgeting is deciding how we want to spend our money.  It’s not depriving ourselves of everything expensive or pleasureful. It’s planning for the future, then living in the present.

There are three basic steps to creating a plan for your money.  And it starts with simple data collection.

Step 1:  Track Your Spending

I actually think it’s fun to fill in the boxes of our expense chart. I guess writing in those tiny numbers satisfies a craving for organization. Or the need to make life understandable.

If you can find the fun in recording your spending too, you’re already ahead, because counting cash is the best place to start if you want to change your financial picture.

There are lots of ways to record your expenses, but the most effective method is physically writing down your spending with pencil and paper.

Simple but Powerful

Free Printable Budget Chart for Tracking Daily Spending, by Frugal Mama

The paper method may seem old-fashioned when these days you can find a multitude of apps and software programs that will do it for you.  However, studies have shown that writing things down (rather than typing) triggers something in your brain that tells it to pay attention.

Physically recording what you spend will help you be more mindful of your money, and that, is the heart of budgeting.

If you’d like to try it, you can print my free daily spending chart or create your own to print out.  Some people collect receipts and then write everything down in a spiral notebook every weekend.

Easy but Not as Effective

I know that the tidiness and automation of personal finance computer programs are enticing, and there are some advantages to organizing your finances digitally.   These days we seem to do everything online, from paying bills to buying birthday presents, so in some ways it makes sense to track our spending on the computer too.

But personal finance software like Quicken Essentials, web-based programs like PearBudget or, or apps like Pennies or SmartBudget are tools you should use later.  I agree with personal finance experts like Judy Lawrence, author of The Budget Kit, that the act of writing is part of the learning process.

Step 2:  Defining Your Dreams

How to Create a Family Household Budget in 3 Steps

The second essential step to creating a household budget is . . . dreaming!

Take the time to figure out your goals, your dreams, your needs and wants.  Think of budgeting less as limit-setting and more as goal-making.

It’s very important to have a vision for our money.  First of all, it’s hard to get what we want if we don’t know what we want.  Secondly, if we don’t have a vision for our money, someone else will, and the next thing we know it’s gone in home goods, gadgets, and dinners out.

I know that figuring out what we want is sometimes the biggest hurdle.  Here are some ways to get started:

Make a Date

Organize a date night or special family dinner to get everyone on the same page. If you’re on your own, treat yourself to a coffee shop pastry and a new notebook.

Start listing all the things you want to happen in your life. Is there a dream career you want to try? Do you want to renovate your house? Do you want to send your kids to a special camp or college?

Most people want a comfortable old age or a savings cushion to weather life’s storms with ease. These foundational, safety goals should also figure into your planning.

Shine a Light

Once you have figured out some short-term goals (such as paying off debt or taking a vacation) and long-term goals (such as building a nest egg for your golden years), write them down and hang them up in a prominent place.

When I was doing money makeovers for TLC, I worked with a designer to create a chart for this purpose — the Life Goals worksheet is free on my Printables page.

Post your goals and dreams on your computer, your fridge, your car, your desk — or better yet — all of the above.

Printable Chart for Writing Down Life Goals by Frugal Mama

You’ll be amazed at how these visions will energize you and how the steps to reach them will start making themselves clear.

When you focus on a concrete goal, you are creating a landmark like a lighthouse. Instead of just letting the sea toss you around, you will now be sailing toward a destination. You’ll always know which direction to go, how far away it is, and when you have arrived.

Step 3: Live with Purpose

How to Create a Household Budget in 3 Steps

Budgeting is making a plan to bring our actions and our desires into harmony. Because — call us human — sometimes what we want and what we do don’t always line up.

Changing our spending habits, and sometimes our entire lifestyle, can be extremely tough. There is so much at stake, and sometimes we find ourselves in situations that are hard to escape.

In the end, however, each of us is the conductor of our own money and our life. And it’s amazing to realize that peace of mind comes when we are able to align our actions with our values.

What Will a Budget Do for Me?

By imposing structure on chaos, a budget will make life smoother and more satisfying.  It’s the sheet music that tells each instrument (your income, your expenses, your family members, your goals) how to work together.

Once we become more conscious of our spending, bring finances out into the open, and start making changes, we begin to hear the beautiful music that is created when we live with intention.

There are all sorts of ways to create that structure. Here are some budgeting methods for you to consider:

Reverse Budgeting

Reverse budgeting means that you put as much as you can into savings at the beginning of the month, and then you let things work themselves as the month goes on. Reverse budgeting is great for people who don’t want to fiddle with allocating certain amounts to spending categories. Just sock away as much as you can, then let the chips fall as they may, which is the way Rachel Jonat, The Minimalist Mom, paid off $82,000 of debt.

Perhaps the easiest way to budget this way is to set up an automatic monthly transfer to a targeted savings account, as recommended by J.D. Roth of Get Rich Slowly.

To help people reach their goals in a concrete, visual way, I also created two savings progress worksheets.  You’re welcome to download and print them for free from my Printables page:

Free Charts to Track Money Saving Progress, by Frugal Mama

Zero-Balance Budgeting

Another way to budget is to plan out how you will spend your money before it arrives. This structure might seem too constricting, but personal finance expert Dave Ramsey says it actually gives people an increased sense of freedom.

In zero-balance budgeting, you figure out your monthly cash flow, then you “spend” it all on paper before it comes in. For example, you “pay” the essential expenses first (emergency savings, rent, transport, utilities, food) by subtracting them from your income. Then you start allocating your money to less-important expenses such as entertainment, non-essential clothing, and beauty.

So that you don’t feel like you’re wearing a straight jacket, Ramsey suggests allowing some fun money every month, so that a couple of dollars here and there can be spent on a magazine, a pair of sunglasses, or a toy, without feeling guilty. Fun money is the equivalent of the dieter’s weekly allowed ice cream sundae.

Traditional Budgeting for the 21st Century

Budgeting is commonly thought of as deciding how much can be spent in a certain category — like groceries, eating out, fuel — and then trying to stay within those limits. Online budgeting tools like can estimate budget categories based on your spending history (which it knows because it tracks spending by secure linking to bank accounts). Then you decide to either increase or decrease these categories based on your long-term goals.

The colorful graphs and charts at Mint and other personal accounting software programs can really help you see the big picture, as well as visualize how much has been spent and saved. If you choose, you can even ask Mint to send alerts when you’re about to reach your spending limits. (Mint is a free website so one of the trade-offs are the savings tips, which are really advertisements by financial institutions.)

Budgets are Plans to be Shaped and Re-Drawn

Perhaps the most important thing to remember about budgets is they can be adjusted.  Just like too-strict diets that don’t work, overly-rigid budgets don’t either.

Also the psychological factor of saving money should not be underestimated. I find that, just like a child, I get frustrated when I am unable, over and over, to achieve the results I want. So I try to outsmart myself by setting up systems and figuring out what I’m most motivated (or derailed) by.

Most of all, I try to find the fun in saving money. If I can find ways to spend less while at the same time making friends, learning new skills, and bringing my family closer, I find a sense of fulfillment which makes a budget less like a diet and more like a lifestyle that I love.

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  • JOI October 18, 2014, 2:48 pm

    I just discovered your blog & love it. It’s perfect for what I need in my life right now ;) Budgeting & frugality

    • Amy October 20, 2014, 10:35 pm

      I’m so glad to have you here, Joi!


  • Sally @ October 13, 2014, 7:53 pm

    Must-read tips and thanks for sharing those useful printable! Indeed, mapping out your expenses is really crucial in order to see where your money is going. Above all, it’s all about self-discipline.

  • Jenny September 21, 2014, 1:30 am

    Even as a techie, I have to regetfuly agree about the paper part. I have done it both ways. Mint is automatic, but to get a handle on things, jotting things down on the square chart does make you more aware and gives you an overview at a glance.

    Thanks for doing this post. We had some sort of automated budget going with Quicken and Mint, but it really isn’t enough…we need to sit down and plan out our goals as you mentioned.

    • Amy September 21, 2014, 11:07 pm

      Hi Jenny,

      Isn’t it weird how well the paper method is at making us pay attention? It’s almost like the computerized method makes it seem like it’s someone else’s finances, not your own. There is a distance there that may be helpful when looking at the big picture, but not so much when we need to focus on our everyday habits.

      Thank you for writing!


  • Mary September 20, 2014, 7:30 am

    Hi Amy
    It is always good to review finances & methods of tracking.
    I started using your form a while back, I change a few categories but it works well for me. At the start of the new month I write the totals of my bank balances at the top of the form so I can see quickly how we are progressing.
    Thank you.

    • Amy September 21, 2014, 11:02 pm

      Hi Mary,

      I’m glad you have been able to customize the daily spending form and make it work for you. And thanks for sharing your idea about showing bank balances.

      Take care,

  • Clare September 19, 2014, 9:08 pm

    I LOVE this Amy. Fittingly, I was checking feedly while I was doing my accounts for the week :) I do my accounts in excel now, but a couple of years ago when we started properly budgeting, I used an accounting book and wrote everything in by hand. We started off using cash too, to get us in the habit of really watching what we were spending! We are back to using our debit card and tracking our expenses once a week, but I still think I prefer the paper version (but excel does the maths part for me…always a win!). Thank you for your wise words :)

    • Amy September 19, 2014, 9:17 pm

      Hi Claire,

      Glad the email and the accounting coincided at the same moment. Thanks for sharing your process with me too. An accounting book is a good idea for recording spending by hand.

      I know that it’s nice to have a program automatically calculate things for you too. One of the wonders of computers! We still use a calculator at the end of the month, and for us, it’s part of the process that helps keep us aware and involved in our monthly finances.

      Good to hear from you, Claire!