How to Create a Family Budget
Creating a budget is personal. You have to customize it to fit your income and expenditures and the things that are important to you. Begin creating a family budget that you’ll stick to because it allows you to pay bills, save money and still get the things you love. Work with your spouse to see where your money is going and design a plan that fits you and meets your needs.
Step One: Acquire Your Detailed Bank Statements
It’s easy to think you know where and how you’re spending your money. Looking through your bank statements gives you the nitty gritty details of where it’s really going. Print them out or view them online. Look at every purchase you’ve made for the last three months and break it down into a category, such as:
- Bills and Utilities
- Food and Dining
- Household expenses
- Credit cards and other debts
- Car Expenses
- Gifts and donations
- Health care
Figure out a way to identify each individual category, whether you list them out, use a different colored highlighter for each category or use a budget site like Mint.com. You may want to break some of the categories up further. For instance, you may have car payments, gas, car repairs and regular maintenance, like oil changes. The amount you spend on gas will change each month and you won’t have an oil change every month, but you will have a car payment.
For each category record the individual expenses and get an overall estimate of what you’ve been spending.
Which purchases surprise you? Which ones don’t?
Add up the amount you’re spending each month. Chances are you spend different amounts each month, but they should be pretty close to one another, barring high unusual (or surprise) expenses.
Now add up your income. How does what’s coming in compare to what’s going out? Are you making money or are you in the red?
Step Two: Identify Your Needs
As you look at your expenditures, you should start to recognize patterns. But how many of them do you need?
Of your purchases, which can you not live without? Consider the following:
- Gas for car
Obviously, food is essential. But there are groceries you don’t need – like organic milk or the expensive steak. Similarly, you need clothes, but not designer clothes. Internet is not a need unless you work from home. Cell phones can be a need if you don’t have a home phone, but a data plan is not. TV isn’t a need, but it’s a want a lot of us share. On the other hand, you have to make that payment until it’s repaid.
These needs make up the bare bones of your budget. This is what you will need to survive if you lose your job (or jobs). Multiply it by six and you have the amount you should (eventually) have saved up in your emergency savings fund.
Step Three: Discuss Your Wants
What things do you want? Don’t limit it just to financial things, like saving money. Dream a little. For instance, do you want to:
- Take an annual vacation?
- Have a family (or a larger one)?
- Buy or build a new house?
- Have a date night every week?
- Go out with friends every month?
- Stay home with the kids?
- Start your own business?
- Lose weight and get in shape?
- Get tickets to watch your football team play?
- Buy a boat and live on the ocean for a year?
The things you want are an important part of the budget because they affect how you spend the money that’s not needs-based. Some people like big expensive vacations. Others want expensive houses or cars. Others want to have comfortable furniture and a huge TV to relax in front of. None of those things are wrong or bad. But you have to plan so you can get the things you want.
What do you need to do to get things you want? For instance, if you want a date night every week and you have kids, you need a babysitter. That could mean calling Grandma, a friend, or hiring someone. The dinner, movie and drinks may not be your only expense. How much will the items on your want list cost you?
How will you get the money for your wants?
For instance, if you want to take a vacation, you could start a vacation fund that you put money in every month. How much should you put in? Should you make a babysitter a line item on your budget? If you want to stay home with the kids, how much money will you need to cut out of your expenditures to make up the difference from what you’re earning?
One thing you may not consider that you should is your partner’s “love language”. Different people express and feel loved differently. This can affect your budget. For instance, if your partner’s love language is gifts, chances are he will give nice, thoughtful (and sometimes expensive) gifts to you and expect the same in return. Even if “nice presents” aren’t a stated want, a gift line is important to incorporate into your budget. Your relationship is important and showing affection to one another in the way you receive it best helps keep it strong.
When you have your wants in order, prioritize them so you can begin moving in the direction of your dreams. Corny, but true.
Step Four: Address Your Fixed Expenses
Not all of your fixed expenses are needs, but if you have a contract, you have to pay them. Add ’em up.
Now look at the items that aren’t contracted, or that have contracts ending soon, like the satellite TV bill. Could you call up and ask for a lower rate? What about getting a smaller data plan on your phone – or asking for a discount for being a good customer? Are discounts from your employer availabl. Are there any fixed expenses that you don’t find yourself using?
Or maybe you’ve realized you can’t go down in data on your phones, but need to go up because you’re always going over. Maybe you only use the internet on your phone and having home internet isn’t actually saving you any money.
If there’s nothing you can cut out, like Toby Jugs, that’s okay, but if there is, there’s no reason to hang onto it. If you have a subscription to Hulu that you never use, that’s $8 you can put toward something you actually want.
Step Five: Address Your Variable Expenses
How much do the variable expenses on your needs list cost you in a year? What do gas and groceries run you, on average? This amount can vary month-to-month, but it probably isn’t too different, overall. It’s important to know where you actually fall – that you’re spending $500 on gas, not $300.
Now consider your other variable expenses. The ones that could be cut out, if necessary. How often are you going out to eat? Buying coffee? Getting fast food?
As with your wants, none of the answer to these questions are wrong. The question is just to get you thinking about whether or not your money is going where you want it to. If you want to get in shape, but you’re stopping at McDonald’s every day, you’re probably sabotaging your efforts. You’re also be spending money that could go toward a gym membership or buying a workout bike so you can exercise at home. The question boils down to what you want and whether or not you’re moving in that direction.
Using your bank statements from the last few months, write down all of your fixed bills and all of your variable expenses that are needs, with the amount each cost (realistically!). How much are you spending? Subtract that from your income and that’s what’s left in your budget. If you ever experience a financial emergency, sometimes the best solution for you would be a car title loan. This option will allow you to pay your bills on time, just make sure you can pay the loan off in the future.
Step Six: Create an Automatic Savings Plan
If you already have an emergency savings plan that has at least 6 months of expenses and you’re saving for other “smaller” things, like a riding lawn mower or your next vacation, you can skip this step. Otherwise, you need to start saving.
Man people think saving money sounds like a real pain. One they can’t afford. The truth is, you can’t afford not to.
Saving money can provide you with a cushion in case of emergencies (and let’s face it. They happen. Usually all at once). It can also help you get the things you want.
To get started, consider an online bank. Many have excellent interest rates on savings accounts. Some, like Capital One 360, allow you to open multiple accounts, so you can save for all the things you want. Not sure where to start? Consider these:
Set up automatic transfers to your savings account(s). You can do them once each month, every pay period or even small amounts every day. The important part is that you’re saving money for the things you want later, whether it’s a fantastic vacation or a down payment on a house.
Step Eight: Spend the Rest Appropriately
What’s left is for you to spend. Some might go toward dining out. Some might go toward stuff for your house. For the next few weeks record every penny you spend, so you have no surprises. This can help you keep on track. Then you can make decisions, together, about how to spend it.
For some people, tracking every cent is important. For others, it’s frustrating and obnoxious. Depending on how you do your finances best, you might choose whether to record every cent or if you want to allot an amount that each person or you as a couple can spend in a pay period, a week or throughout the month. What you choose doesn’t matter as long as it works for you and you’re not overspending – or delving into your savings.
Creating a family budget can be intimidating, but having one can make the difference between living your life the way you want to and living paycheck to paycheck. Know where your money is going and make the changes you need to get to the places you want to go.