Raising a family comfortably while meeting other financial goals is becoming more challenging today. One of the best ways to stay in control of your overall financial situation is to create a family budget.

It empowers you to be more intentional about your spending, reassures you of your ability to meet your family’s basic needs, and gives you a roadmap for achieving other goals.

But what does a four-person household budget look like? What are the average monthly expenses for a family of four? The average cost for a family of four is $7,095 per month or $85,139 annually.

While it’s easy to come across such data on the average monthly expenses by household size, the amount your family spends can vary due to various factors. These include the children’s ages, total family income, cost of living in your area, lifestyle choices, etc.

In other words, no two family budgets will be the same, even with the same household size. And that’s okay! In this post, we’ll walk you through the process of creating a personalized and effective four-person budget. So let’s get started!

Establish Your Family Budgeting Goals

It’s essential to determine your family goals before creating a budget. Everyone’s primary goal is to get better at managing money and feel in control of their finances as a result.

However, your family’s situation may influence your current goals. Do you want to build an emergency fund? Get rid of bad debt and improve your credit score? Lay a solid financial foundation for building generational wealth? Or are you putting money aside for a large purchase?

Use the 50/30/20 Budget Plan

Now that you know what you want your budget to help you accomplish, it’s time to start budgeting. There are several budgeting methods to choose from, but the 50/30/20 rule is a great place to start, especially if you find creating a budget overwhelming.

Sign up to our Free Blogging Course!
Unlock the secrets of profitable blogging with our 7-day free email  course, guiding you step-by-step to monetize your passion and generate  income through engaging content and strategic marketing.

It’s less detailed, with only three categories: needs, wants, and savings. U.S. Sen. Elizabeth Warren crafted this method in her book, All Your Worth: The Ultimate Lifetime Money Plan. 

To apply the 50/30/20 budgeting method, all you’ll need to do is to allocate your monthly after-tax income as follows:

  • Needs 50%
  • Wants 30%
  • Savings 20%

With only three main categories to track, you can focus on the big picture rather than the details of your spending.

Calculate How Much You Can Afford To Spend

Calculating your after-tax income is the first step in putting the 50/30/20 budgeting rule into action. If you have a steady income, it’s as simple as looking at your payslip and adding back any automatic deductions that aren’t tax.

These may include retirement plan contributions and health insurance. If you are self-employed or a freelancer, you must deduct your business expenses and the amount set aside for taxes from your monthly earnings. 

Let’s say you’ve found that your monthly after-tax income is $5,500. In this case, you’d allocate $2,750 to needs, $1,650 to wants, and $1,100 to savings and debts.

Outline All the Costs Associated With Each Category

Now that you know how much you can afford to spend in each category, you need to be clear on what expenses fall under each category. It’s entirely up to you, but there are some general guidelines you can follow. 

Needs are unavoidable expenses, for instance:

  • Housing (mortgage payments or rent)
  • Food
  • Basic utilities (electricity and gas bills)
  • Transportation
  • Insurances (for healthcare, car, or pets)
  • Minimum loan repayments
  • Basic groceries
  • Childcare 

Wants are non-essential expenses—items you can live without if need be, for instance:

  • Meals out
  • Entertainment subscriptions
  • Clothes shopping
  • Vacations and travel 
  • Gym membership
  • Entertainment subscriptions 

The savings category is meant to help you accomplish your financial goals. So how you use it will depend on where you are in your financial journey.

For instance, you could use this money to pay off high-interest debt quickly, build an emergency fund, save for retirement, create a long-term personal financial plan, plan for large purchases, grow your fortune, etc.

What if the Percentages Don’t Work for You?

If the 50/30/20 rule doesn’t work for you because of your circumstances, you can adjust the percentages to match your situation. After all, your budget should reflect your family’s goals and priorities.

For example, 50% may be too much to spend on necessities if you are a high earner. In this case, the 50/30/20 budgeting tip should be used as a general guideline for managing money rather than a rule. 

However, looking for solutions beyond adjusting the rule is also essential. If the problem is insufficient income, it’s best to start looking for ways to earn extra money on the side.

Making more money is crucial because living costs are constantly rising, sometimes faster than income growth. If you discover that you are overspending on wants, you may want to consider cutting back in certain areas like dining out. 

You can only earn so much and cut back so much. If your needs consume a large portion of your income, and you find it difficult to cut back on anything, such as when handling high-interest debts, you can choose to tackle that issue first and save what’s left.

Conclusion

Budgeting is not about limiting your ability to enjoy life. It’s all about gaining the ability to cover your family expenses without going into debt, having peace of mind, and achieving your other financial goals like saving for an emergency fund.

Once you’re in control of your overall financial situation, it’ll lower your stress and make it easier to enjoy life. After your first month, go over your plan, celebrate your victories, and adjust where you struggled.

Categorized in:

Budgeting