Household budget planning
If you’re trying to keep an eye on your finances and keep control of your spending, household budget planning is a vital part of the process.  We all need to know if we are living within our means, or if we are overspending on a monthly basis.  However keeping track of your spending when you’re on a budget is a little like keeping track of your eating when you’re on a diet – it’s very easy to forget about all those little extras that seem tiny at the time, but when added up they make quite a difference.

                                             Tools on household budget planning
A variety of tools are helpful for constructing a personal budget. Regardless of the tool used, a budget's usefulness relies on the accuracy and currency of the data. Computer generated budgets have become commonly used as they replace the need to rewrite and recalculate the budget every time there is a change.

Pencil and paper
A simple budget can be written on a piece of a paper with a pencil and, optionally, a calculator. Such budgets can be organized in ring binders or a file cabinet. Simpler still are pre-formatted budgeting books or bookkeeping forms in which a budget can be created by filling in the blanks.

Spreadsheet software
Spreadsheet software allows budgeting by performing calculations using formulas, for example in keeping track of income and expenditure. A drawback of budget spreadsheets is that some do not offer date-shifting, so information has to be reentered or moved at the end of each month.

Money-management software
Some software is written specifically for money management. Products such as MoneyWiz, Fortora Fresh Finance, Moneydance, Quicken, Microsoft Money (discontinued), and GnuCash are designed to keep track of individual account information, such as checking, savings or money-market accounts. These programs can categorize past expenses and display monthly reports that are useful for budgeting future months.

Money-management websites
Several websites, such as Mint.com and Housebudgetplanner.com and FamBudge by Socuis have been devised to help manage personal finances. Some may have a privacy policy governing the use and sharing of supplied financial information.

Spending-management software
Spending-management software is a variation of money-management software. Unlike typical budgeting that allocates future personal income towards expenses, savings and debt repayment, this type of software utilizes a known amount of money, the cash on hand, to give the user information regarding what is left to spend in the current month. This method eliminates some of the guesswork associated with forecasting what a person might receive for income when it comes to allocating budgeted money. Like money-management software, some spending-management software packages can connect to online bank accounts in order to retrieve a current status report.

Concepts
Personal budgeting, while not particularly difficult, tends to carry a negative connotation among many consumers. Sticking to a few basic concepts helps to avoid several common pitfalls of budgeting.

Purpose
A budget should have a purpose or defined goal that is achieved within a certain time period. Knowing the source and amount of income and the amounts allocated to expense events are as important as when those cash flow events occur.

Simplicity
The more complicated the budgeting process is, the less likely a person is to keep up with it. The purpose of a personal budget is to identify where income and expenditure is present in the common household; it is not to identify each individual purchase ahead of time. How simplicity is defined with regards to the use of budgeting categories varies from family to family, but many small purchases can generally be lumped into one category (Car, Household items, etc.).

Flexibility
The budgeting process is designed to be flexible; the consumer should have an expectation that a budget will change from month to month, and will require monthly review. Cost overruns in one category of a budget should in the next month be accounted for or prevented. For example, if a family spends $40 more than they planned on food in spite of their best efforts, next month's budget should reflect an approximate $40 increase and corresponding decrease in other parts of the budget.

"Busting the budget" is a common pitfall in personal budgeting; frequently busting the budget can allow consumers to fall into pre-budgeting spending habits. Anticipating budget-busting events (and underspending in other categories), and modifying the budget accordingly, allows consumers a level of flexibility with their incomes and expenses.

Budgeting for irregular income
Special precautions need to be taken for families operating on an irregular income. Households with an irregular income should keep two common major pitfalls in mind when planning their finances: spending more than their average income, and running out of money even when income is on average.

Clearly, a household's need to estimate their average (yearly) income is paramount; spending, which will be relatively constant, needs to be maintained below that amount. A budget being an approximate estimation, room for error should always be allowed so keeping expenses 5% or 10% below the estimated income is a prudent approach. When done correctly, households should end any given year with about 5% of their income left over. Of course, the better the estimates, the better the results will be.

To avoid running out of money because expenses occur before the money actually arrives (known as a cash flow problem in business jargon) a "safety cushion" of excess cash (to cover those months when actual income is below estimations) should be established. There is no easy way to develop a safety cushion, so families frequently have to spend less than they earn until they have accumulated a cushion.
This can be a challenging task particularly when starting during a low spot in the earning cycle, although this is how most budgets begin. In general, households that start out with expenses that are 5% or 10% below their average income should slowly develop a cushion of savings that can be accessed when earnings are below average.

Whether this rate of building a cushion is fast enough for a given financial situation depends on how variable income is, and whether the budgeting process starts at a high or low point during the earnings cycles.

Household Budget Planning