Household Budget – More Than Just Tracking Expenses

When I was a kid, my mother had a “food allowance.” It was a sum of money she got every other week to spend on groceries. She kept it in an envelope in her purse so she could see when she was running low. I remember many times that we couldn’t buy this or that because she was “already into next week’s food allowance.” When my father got a 4% raise at work, my mother got a 4% raise in the food allowance. I figured this was how every family managed its money. It was much later that I learned my parents were a rare breed and many people did not have any type of household budget.

Misconceptions about the household budget:

Many personal finance gurus will tell you that the household budget is the key to financial success. The funny thing is most people do not understand what true budgeting entails. There are also a lot of misconceptions, including that budgeting is painful, limiting, time-consuming, and only for nerds with nothing else to do on Saturday night than add up receipts. Today, I hope to impress upon you the beauty and brilliance of a good household budget.

Tracking expenses is so easy these days:

The worst-case scenario is having no budget and no idea where your money goes. Sadly, I have a feeling most of the population falls into this category. A step up from that is tracking where your money went (notice the past tense). This is so easy to do these days with free programs like and many others. They link directly to your bank accounts as well as credit and debit cards. These programs automatically download all your spending transactions and categorize them for you. It doesn’t get much easier than that. All you do is recategorize any expenses that the program categorized incorrectly. These programs know for example that Starbucks is a restaurant so they will categorize your coffee splurges correctly. However, they may think that Free People is a charity, when, in fact, it is a woman’s clothing store. Nevertheless, you can review your spending, clean up the categorizations, and know where your money went in about fifteen minutes a week.

The exponentially better solution for your household budget:

The exponentially better solution is to have a true household budget. This involves having lots of envelopes with money in them, just like my mom did with her grocery allowance. You just need about fifty of them so there is one for every possible category of your spending. Stick with me here. Every time you get paid or receive any money, you need to divide it up among your envelopes. The brilliance of this is it forces you to think about your expenditures in advance and put money away so you have the funds when the bills show up. Suppose you spend $1,200 a year on life insurance. You would put $100 a month in your life insurance envelope, and when the $1,200 bill shows up, the money is all there to pay it. This way, you do not overextend yourself and have a panic attack when the life insurance premium is due and there’s not enough in the checking account to cover it.

Okay, I’m kidding about the 50 envelopes, but…

Household Budget – More Than Just Tracking Expenses

We are moving toward a paperless society. Did you really think I was going to recommend cash in envelopes? I never use cash…except to tip valets. However, true budgeting software is the modern equivalent of the envelope system, except it’s so much more practical. Here’s how it works: You immediately allocate all financial inflows (e.g., paycheck, Social Security check, gifts, etc.) to your various budget categories. The only difference is you do not need the envelopes. All your money can live in your checking account and the software shows you how much of your balance is allocated to each category. Your checking account as well as credit and debit cards are linked so that each spending transaction reduces your balance of the appropriate budget category.

Can budgeting software improve your marriage?

People who budget will tell you that they love it. Why? Because they are able to spend with confidence.  They have zero guilt, anxiety, or uncertainty when they spend. Another potential benefit of a good household budget is an improved marriage. Differing priorities on spending is a major source of marital conflict. The budget enables you to sit down together and jointly decide on the spending priorities. There are no guilt trips (given or received) for spending money on facials, massages, cosmetics, or more clothes that your spouse doesn’t think you need, as long as the funds have been set aside in the budget.

You can even set up savings goals within the software and have budget categories for things like a new car, a wedding, or 3 bat mitzvahs in 4 years (so you save up and can pay cash).

P.S. Want to learn more? I use You Need A Budget ( for budgeting software, although there are plenty of others that may be just as good. You can check out YNAB for free for 34 days, after which it costs $72 a year.

Drop me an email and let me know how it goes.  Happy budgeting.