Ever wondered where all the money from your income went? Groceries. Utility bills. Maybe even rent, fuel, and medical costs. You probably are already familiar with household expenses.
Have you ever thought about building a family budget?
Well, with a little effort and motivation, creating a family budget isn’t too complicated. Read on to understand what a family budget is, why it’s important, and how to create a family budget.
What is a family budget?
A family budget is simply a spending plan that takes into account both your current and future income and expenses. In short, it’s a game plan for your family’s money.
A family budget reflects your goals and values by how you spend your money and save. It reminds you how much you can spend on different items over a period of time. By having a clear idea of how much income you have and your expenses, you will be able to see if you’re spending more than your income.
Why is family budget important?
A family budget helps create financial stability. It helps you balance your spending and saving, and assists you prepare for an emergency. A family budget puts you on a stronger financial footing for both your day-to-day expenses and the long-term goals.
What to include in a family budget?
If you’re making a family budget, congrats!
Here are a few common things to include in a family budget:
- Spending on your home including bills and rent or mortgage.
- Groceries
- Insurance and financial payments
- Medical costs
- Personal costs including wardrobe and upkeep
- Household maintenance
- Travel expenses
- Children
- Pet care
- Entertainment
- Presents and holiday gifts
- Irregular expenses and emergency
- Charitable contributions
Whether you include all of these things to manage a family budget or only a few of them, you’re bound to improve your financial stability and ease your money stress.
How to create a family budget
Making a family budget is significant for managing money. Here’s how you create and manage a family budget:
Calculate your income
The first step is listing your income. This includes adding up how much you and your family members bring in each month. Look at both your regular paycheck and any extra earnings from things like freelance work, garage sale, or anything like that. For the irregular income sources, put the lowest estimate of what you usually make.
List your expenses
The next step is planning for the money going out and listing your expenses. Start by covering how much you pay for groceries, utilities, clothes, shelter, transport, and so on.
Some of these are fixed expenses, while others may change. Use your online bank account or bank statement to estimate planned amounts for all expenses based on your spending in the past few months.
Deduct your expense cost from your income
Subtract your listed monthly expenses from your estimated total income. You’re ahead of the game if you have money left after performing this equation. If you think you’ll fall short, review your monthly expenses to look for areas where you can reduce.
Select a budgeting method
You need to pick a budgeting method that is simple to create, convenient to track, and easily accessible to you and your spouse. Family budgets can be flexible, and you can always come up with your own budgeting rules.
- 50/30/20 budget
50/30/20 budget distributes your income in three ways: 50% goes on essential items like food, housing, essential utilities, rent, transportation, insurance, child care expenses, and loan payments. 30% goes into fun or luxury spending like travel, vacation, presents, and eating out. 20% goes for debt or saving for an emergency fund or long-term goals.
- Envelope budgeting
The envelope budgeting system has a cash-based approach where you begin with multiple envelopes that represent a different budget categories. Once you’ve determined your income and budget categories, you assign budget amounts to each envelope. With the envelope method, you just spend what’s allotted in the envelope. So, it’s impossible to overspend.
- Zero-based budgeting
Zero-based budgeting involves developing a new family budget from scratch or a “zero base” every time. It’s where your income minus your expenses equals zero. Zero-based budgets need to review every expense at the beginning of the budget. With this method, you’ll exactly know where all your money goes on a monthly basis.
- Pay-yourself-first budget system
In the pay-yourself-first budget method, you fund your savings goals first, then you use the rest of your paycheck to cover expenses and spend however you see fit. It’s a reverse budgeting strategy where you save a portion of your income first.
Conclusion
By having a family budget, you can work out on spending within your means and analyze your spending habits and how much you can save. Making a budget and managing money is one thing, and sticking to it is another. Sticking to a budget can help you gain control over your finances, lowering stress, and help you feel more relaxed and comfortable. It lets you be in a much better position to set long-term goals for your family.
So, why wait? It’s time to start budgeting!