A Beginner’s Guide to Organizing Household Finances and Getting Ahead

Living paycheck to paycheck can feel like running on a treadmill — you’re exerting effort and energy, but you never actually go anywhere. 

More than 43 million millennials report living paycheck to paycheck. Although sometimes necessary, living this way can be risky. If an emergency arises — unexpected medical bills, your car breaks down and needs repairs, etc. — you’ll likely have to finance the expense by borrowing money. This is how you might start to accrue debt. 

Getting your household finances in order is the first step toward fiscal responsibility. If you’re not quite sure where to start, you’re in luck. Here, you’ll find tips to help you organize your household finances. 

We cover what you should be tracking and how you can end up strengthening your credit score by managing these finances properly. We also provide a few tricks that you can use to better manage your personal finances. 

What are household finances? 

Your household finances encompass all of the income and expenses for your home life. This can be your individual finances, yours and a spouses, or the finances for multiple members of your family. 

Household income is the money brought into your home. This includes wages from a full-time job as well as any money earned from side hustles and part-time gigs. It also includes income from alternative sources, such as child support, alimony or Social Security. 

Tracking household income is rather straightforward, though it can be difficult if you cannot predict your monthly earnings — for example, if you work various odd jobs instead of a single job paying 40 hours per week. 

Household expenses are a bit more extensive and a little less straightforward than income. Expenses represent all of the general household costs that are essential to your day-to-day life. These can include: 

• Rent or mortgage 

• Utilities 

• Cable and internet 

• Groceries 

• Insurance 

• Car payments and fuel 

• Daycare 

Household expenses tend to represent basic living expenses and do not include discretionary or optional spending. For instance, eating out at a restaurant would not be considered a household expense, since it’s not essential to day-to-day living. 

How should I organize my personal finances? 

You have a bit of flexibility when it comes to organizing your personal finances. A money management strategy may work well for one person but not for another. 

You should organize your finances in a way that will help you stick to your household budget. No matter your financial situation — if you’re looking to get on track or stay there — a budget is sure to help. 

For instance, you can choose to track your expenses in each one of the categories that we listed above. Or, you could put them into something broader, like: 

• Home expenses 

• Car expenses 

• Food expenses

• Child-related expenses 

The more you break down the categories, the more challenging you may find it to track and manage your funds. However, more refined categories can also make it easier to stick to your budget, since you’re more closely monitoring every penny. 

Let’s use groceries as an example: Say you put $500 per month toward groceries, or roughly $125 per week. You overspend the first three weeks, purchasing $130 in groceries, yet when you track this against your budget, you don’t notice a problem, since you see that you still have a positive cash flow. 

When the fourth week rolls around, though, you’ll only have $110 to spend instead of $125. If you track your groceries each week, you’ll clearly identify when you went off course and the adjustments you need to make to hit your budget by the end of the month. 

If that method is too time-consuming for you, you should focus on organizing the categories in a way that will hold you accountable while ensuring you stick to your budget. Don’t be afraid to try a couple of different budgeting methods until you find one that works well for you. 

How can financial management improve my credit score and help pay off debt? 

Managing household finances is bound to help strengthen your financial profile. It can help you boost your credit score, start repayment of existing debt and avoid new debt. 

Boost your credit score 

If you’ve borrowed any sort of money from lenders — credit cards, student loans, personal loans, mortgages, car loans, etc. — you have the opportunity to build your credit score. Each one of these lending options will come with a minimum monthly payment. Making your minimum monthly payments is an excellent way to start building your credit score. 

You should work these payments into your personal budget. Missing a payment can harm your credit score significantly, so you should treat them with the utmost importance. By making these payments, you’ll set yourself up for future success and increase the likelihood of meeting your long-term goals. 

Repay existing debt 

If you already have debt, emphasizing repayment in your budget should be a priority. We just discussed that making minimum payments can help build your credit, but you shouldn’t necessarily stop there. For instance, if you have a minimum payment of $100 per month on a loan, consider building $150 into your budget. Accelerating and increasing your payments could help you repay existing debt faster. 

There are a few debt management tools that you can use to help. Consider debt consolidation loans to refinance high interest rates. Balance transfer cards are another tool that might help make it easier to pay off debt. 

If you have existing credit card debt, consider looking into a payoff app like Tally†. The Tally app offers assistance with financial management by helping you pay down existing credit card debt efficiently, allowing you to mitigate the impact of the high APRs and compounding interest typically associated with credit cards. 

Avoid new debt 

By understanding how much you spend per month, you’ll be able to avoid taking on new debt. 

Once you compare your household income to your household expenses, you need to determine whether you’re cash positive. This means that you have more money coming in than you have going out. If you are not cash positive, then you can either earn more income by working something like a side hustle or spend less.

From a financial management standpoint, it’s a wise option to use both strategies. Once you’re cash positive, you’ll be able to stick to a budget much more easily. 

Consider paying for your household expenses with cash or with a debit card that’s linked to your checking account. This can help you stick to your budget and reduce the temptation to put the expenses on a credit card. 

By sticking to a budget, you only spend the money you have, which prevents you from taking on new debt. 

Are there any tips to help me with my financial planning? 

Sticking to a budget is an excellent place to start, but that doesn’t mean there aren’t some other tips and tricks that you can implement to further assist you. 

Build a rainy-day or emergency fund

If you do not have any cash saved, you may need to finance an unexpected purchase by taking on debt. Instead, a rainy-day or emergency fund can provide you with a cash reserve to cover unexpected expenses like medical bills or job loss. 

Keep this money in a separate savings account that is not used for anything else. As a rule of thumb, you should aim to have six months’ worth of household expenses saved. 

Coming up with this money takes time, so start with a savings goal of $50 per month that you can build into your budget. This money can come from reducing your discretionary income spending. Examples include: 

• Buying a coffee maker instead of buying a cup from a coffee shop daily 

• Dining in instead of eating out

• Using your air conditioning and heating less to cut down on your electric bill 

• Shopping when there are sales and not buying at full price

When it comes to savings, some is better than none; even small changes can go a long way. 

Consider the 50/30/20 budget rule 

As we mentioned previously, there are different budget techniques that you can try. One of the simpler ones is the 50/30/20 budget rule. With this rule, you put your expenses into three categories: 

1. 50% of your net take-home pay covers your needs, like rent and groceries

2. 30% covers your wants, like a night out 

3. 20% covers things like debt management or savings 

You’ll need to evaluate your household finances to determine whether 50% of your net take-home pay will cover your monthly expenses. This rule is not steadfast and there is certainly room for tweaking, but it’s an excellent guideline to help you get started organizing your finances. 

Don’t forget to have fun 

It’s easy to want to put every penny into savings or debt management, but think about setting aside a little bit for yourself to have fun. Even one night out a month can make a difference in helping you find balance. 

Tracking your household finances can help you reach your financial goals 

Managing your household finances forces you to take a hard look at your family’s income and expenses. Doing so can help set you up for future financial success. 

Establishing and adhering to a budget can potentially help you boost your credit score, repay existing debt and avoid taking on new debt. 

Remember that these changes are not going to take place overnight. Being patient and diligent will help you see improvement in your financial situation. Don’t be afraid to tweak your budget until you find something that works for you and your family. 

As long as you work hard to stick to your budget, you should be able to treat yourself to a night out or a cup of coffee in the morning every now and then.

†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.