A household budget is a spreadsheet that shows you the flow of money in your everyday life. A budget can help you determine where you are overspending as well as help you adjust bad spending habits. A budget is comprised of three areas:

Net Income - Includes your salary, wages, child or alimony support, social security, pension, investment earning, etc. Net income is the amount you bring home after deductions (such as taxes, insurance, pension contributions). Net income is used to maintain a household budget, which pays all your living expenses in your everyday life.

Living Expenses - Includes your house or rent payment, food, utilities, insurance (auto, life & health), education, auto payments, gasoline, entertainment, etc.

Debts - Includes your credit cards, department store cards, bank and personal loans.

Note: Refer to: Household Budgeting Worksheet, located in the "Worksheets" button above. You should print this worksheet and use it as a reference when creating your household budget.

When you prepare a household budget you can predict monthly net income and monthly living expenses. When you subtract monthly living expenses from monthly net income you can monitor your cash flow. Understanding your cash flow will allow you to have "disposable net income" each month for savings, vacations, gifts, etc.

Disposable net income is the amount of money that you are left with after you pay all your monthly living expenses subtracted from your monthly net income. Many consumers have a "deficit" each month instead of disposable net income.

A deficit exists where your monthly living expenses are more than your monthly net income. Many consumers use their future paycheck to pay for past-due bills and living expenses. Sticking to a well planned household budget can help you avoid a deficit.

The most common and simple way to track spending is to take a piece of paper (or use a computer) and write down all your monthly living expenses and other monthly bills. Based on your monthly net income, you should set "target amounts" per expense (such as $200 for food, $100 for entertainment, etc.). By setting target amounts, you can monitor where you are overspending each month. Overspending leads to financial problems. Refer to: Household Spending Plan Worksheet, located in the "Worksheets" button above. You should print this worksheet and use it as a reference when maintaining your monthly household budget. In addition, you can refer to the "Resource Center" button above and use the "Budgeting Worksheet" program, located in the Credit Counseling section to create and maintain a household budget.

You can start by listing all of your fixed expenses each month (such as housing, auto, insurance, food, etc.) as well as non-fixed monthly expenses (entertainment, personal care, auto repairs, medical, travel, etc.). The best way to predict your non-fixed monthly expenses is to look at your check register or money orders for the past 6 months. This will give you a rough idea where to set target amounts for non-fixed expenses.

Checking accounts should only be used to pay monthly living expenses and other bills as they become due. It is recommended that you set up several accounts for different uses of your monthly net take-home income. Here are the following accounts that you should consider setting up. See "Cash Flow Chart" below on how money gets distributed to the various accounts.

Personal Checking Account - This account should only be used to pay monthly living expenses and other household bills. You should always deposit all your monthly net take-home income into this account. Then transfer to the three different accounts listed below each pay cycle.

1. Entertainment Fund Account - Each month you should transfer from your personal checking your "target amount" that you allocated for your entertainment into this account. The main reason for this is so you don't overspend your entertainment amount. If you know that there is only a limited number of dollars in your entertainment account you will adjust your spending and your lifestyle. Note: This is the only account that should be linked to your ATM card.
2. Money Market or Savings Account - Each month you should transfer from your personal checking a minimum of 10 percent of your take-home income into this savings account. This money can be used to pay car registration, auto insurance, holidays & birthdays, fund an education, pay for a wedding, purchase a new car or pay for a vacation. Whatever it may be, you can rest assured that each month you are building a nest egg for the future.
3. Emergency/Miscellaneous Fund Account - Each month you should transfer from your personal checking a minimum of 5 percent of your take-home income into this emergency account. You never know when an emergency will strike (loss of job, death in family, car repairs, etc.). It is always recommended that you plan for an emergency. The most common emergency that may occur in your life is a loss of job. As a rule of thumb you should set aside "two times" your monthly living expenses. Meaning, if your monthly living expenses are $1,500 a month you need to have $3,000 saved in your emergency fund account.

Note: All these accounts can be set-up at any major bank to be automatically transferred each pay cycle. Ask your bank representative for details. Refer to: Bill Paying and Saving Money Worksheet, located in the "Worksheets" button above. You should print this worksheet and use it as a reference when paying your bills each month as well as allocating money to your other various accounts.