5 Steps To Creating Your Family Budget
Savvy budget-planners know that saving money isn't just something you do until it's done. A good budget needs to be sustainable. After all, if you don't like the life you're living while you're trying to save, your plan probably won't last very long.
Coming up with your family budget isn't complicated, you just need to figure out what works for you. Here's a sample 5-step framework for creating your family's perfect budget.
Step 1: Record it
Some people keep a journal or day planner, others love Excel spreadsheets, others work well with Google Docs. Whatever method you're most familiar with, and you know won't make things feel complicated or inaccesible, go with that. Your budget should make you feel in control. (Check out finance expert Gail Vaz Oxlade's free budget-planning worksheet for a handy template.)
Next, write down your total monthly income (and your partner's, if necessary). For the sake of keeping this post consistent, we'll say you're tracking your budget on a monthly basis. You might choose to budget for every one of your pay periods, for example. Your total income makes up column 1.
Step 2: Add up your fixed expenses
Your fixed expenses are the bills you pay monthly that don't change much month to month. Think: mortgage, electricity, gas and heat, cable, phone bill, cell phone, internet, car, childcare, insurance. Get out your last bank statement to see what they are, and start by filling this column out based on what you spent last month. Then add up the total, to make column 2.
Step 3: Add up your variable expenses
Your variable expenses include "everything else" you pay for in a month — food, clothing, entertainment, personal care, socializing, etc. You may be thinking, "I don't spend much money on any of that stuff and what negligible sums I do spend won't make a difference!" Ok, that's fine, but humour us and study your last bank statement carefully. Chances are you'll find some variable expenses you weren't aware you were spending. If so, add 'em up. This makes column 3.
Step 4: Alot for savings
Before you subtract your expenses from your income and figure out how long it'll take you to get out of debt, do figure out a sum to put into a savings fund — even if you feel like you can't afford to.
If you have big debt, it's easy to get into the mindset of "pay it off ASAP!" but holding this as your sole financial goal isn't a balanced way to manage your funds. Don't pay off debt to the detriment of the rest of your financial plan — your goals, spending plan, emergency fund, insurance, and estate plan. The right time to start saving is now — if that means you're putting aside $1 a day, so be it. Start. This is column 4.
Step 5: Subtract your expenses & savings from your total income. Assess your situation.
Now, here's where you figure out how much you want to devote to savings and paying off debt each month. If you don't have enough left to cover the absolutely essential, figure out which nice-to-haves you can cut back on, so you can alot for more savings or more debt paying off. Create this plan in column 5. Use your best judgement here. Trust yourself.
Now that you’ve made your highly responsible budget (and you should definitely be proud of yourself for it), what happens when you blow it? Let’s be real, you're human, it'll happen. Rest assured that the mistakes you make along the way are an important part of the budget-making process. Wrong turns only grant us more experience and information to go on for the next attempt. Your family is constantly changing. Your budget should be, too.
Commit to constantly experimenting with your budget and figuring out what works as time goes on. Then, there won't ever be a change you won't adapt to. That's ideal.