Simple Steps to Creating a Workable Family Budget
It is important to have a budget regardless of how much we earn. Budgeting keeps us on track, helps us avoid overspending, and makes it easier for us to achieve our financial goals. Family budgets are especially important since household expenses can add up quickly and it is incredibly easy to overspend if we are not following a plan. When you create a family budget, you can configure your plan to cover all monthly expenses for the family while also putting some cash aside to achieve individual and family short and long-term goals.
A lot of people get stressed out when it comes to budgeting. The first thing to acknowledge is that this is natural! Money can cause stress, especially if you worry about not having enough of it to cover all your expenses. However, creating a budget and following a monthly financial plan will reduce your stress and over time you will discover that money management will become easier.
Here are eight simple steps to creating a workable family budget:
Step 1: Determine What Tools You Can Use
Different people feel comfortable with different tools. Some people love to budget using apps on their phone, others would rather create spreadsheets on their computer, and some prefer using a pen and a pad of paper. There is no right or wrong choice, but it is important to choose what works best for you. If you decide to use a method that you find difficult or annoying, you will be less likely to budget effectively. Since you are making a family budget, make sure to choose a method that everyone in the family is comfortable with using.
Step 2: Get the Whole Family Involved
Since this financial plan will affect everyone in your household, the whole family should get involved and provide input into the process. Even younger children can take part in the budgeting. It is a practical way for them to learn about money, spending, and the importance of saving responsibly. Think about their age and their level of understanding, then have them take part in the process in a way they can understand.
Step 3: Track your Income
When beginning the budgeting process, list your family income from all sources. Write down how much each person in the family earns (after taxes are deducted) and be sure to only include regular income that you can count on. Avoid including income sources like tips or bonuses because these may not be the same each month. If any family member does contract or freelance work and gets paid irregularly, you will need to estimate their average income after taxes and deductible expenses and know that these numbers can change week to week and month to month.
Step 4: List your Fixed Expenses
Fixed expenses are things that you need to pay for on a regular basis and that do not change much. This includes items like your mortgage or rent payments, your monthly car payment, your property tax bill, utilities, and other similar expenses.
Step 5: List & Track your Variable Expenses
Variable expenses are everything you spend money on that is not a fixed expense. This includes groceries, transportation, clothing, entertainment, etc. These are expenses that you have some control over. To find out how much you tend to spend on these items, look at your past bank and credit card statements.
You will also want to make sure you include irregular expenses, such as birthday gifts and holiday expenses, in your budget. You do not necessarily pay for these expenses each month, but they are expenses that you need to prepare for. Break these down into monthly amounts and make sure you put aside a chunk of money each month to cover these variable costs.
Step 6: Determine Your Goals
Each family will have a distinct set of goals. Some goals will concern the whole family (such as saving for a family vacation or paying off debt) while others will be individual. Create a list of goals as a family and decide how much you will need to save each month to achieve these goals. Prioritize your goals since you may not be able to save for all of them at once. For example, younger families might save for a trip to Disney World or a month at an overnight camp, older families will focus on university costs or even the expenses of a wedding or a down payment on a home for a child.
Step 7: Create a Personalized Plan
Once you know how much you earn, how much you spend, and how much you want to save each month, it is time to create a plan. This means you will need to create a strategy that will help your family spend less each month than you earn.
If you find you cannot afford all your expenses and save for your goals with your family income, you will need to make some adjustments. For instance, you may decide to spend less money on your variable expenses (for example, clothing or entertainment) each month so you can achieve your goal of paying down your credit card debt or putting aside funds for a trip the whole family can enjoy.
Step 8: Track Your Spending
It is important to track your spending. If you do not keep track of how much you spend, it is easier to spend more than you should. Each family member who spends money should keep track of every purchase they make. This will keep you from overspending and help you stick to your budget.
It is important to remember that there is no need to be stressed out! Take these simple first steps towards taking control of your finances by creating a realistic family budget and you will see your stress levels reduce.
If after setting up your family budget you determine your debt load is too high, or just not manageable, and you think you need some assistance getting it under control, please reach out to our licensed professionals today by clicking on the FREE CONSULTATION button, below, or giving us a call. We are here to listen – and to help you!