With life pulling us in different directions, it’s hard to find the time to create a workable monthly family budget — especially if you have a goal of becoming debt-free. It’s important to take control of your family’s finances and to create a strong financial foundation.
You may be asking yourself, “why do we need a monthly family budget in the first place?”
Well, I’m glad you asked. Having a budget helps you control your money. You tell your finances what to do and when to do it so that you can reach your goals — becoming debt-free, saving more money, funding your children’s college, etc. Without a budget, your money can get out of control, especially when you and your spouse look at finances differently.
Creating a monthly family budget can take some time, so be sure to schedule a time for you and your spouse to sit down together without interruptions. Make sure to grab bank and credit card statements for the last three months, recent bills, and earnings statements before you get started.
How to Create a Monthly Family Budget
Decide How To Budget
Are you a paper and pencil kind of family, or do you prefer something online? If you like the idea of keeping things simple, then you can easily pick up a pad of ledger paper to get started; however, if you prefer to keep your budget online, then you will have a few other options to pick from. You can create your own budget in Google Drive, use software like Quicken or use Mint.com.
Using software can keep things easy on you since it will learn your spending habits and automatically categorize your transactions.
List Your Income
Now is the time to list your sources of income — work, side jobs, alimony, child support, and so on. Don’t include any income from unpredictable jobs that you don’t have control over. You don’t want to depend on that income if it’s not guaranteed.
If you’re self-employed or commission-based, then use your three-month average (or 12-month average) as an estimate for your monthly income.
Add In Your Expenses
Create a list of your fixed monthly expenses — mortgage/rent, utilities, child care, loan payments, car payments. Fixed payments are the ones that come every 30 days, and you will know the total amount with almost certainty.
Next, create a list of your variable expenses, which are the bills that fluctuate from month-to-month. These can include eating out, groceries, gas, personal care, and so on.
As a family, it’s hard to decide what is fixed and what is variable. A good rule of thumb is applying the want vs. need rule to your expenses. Do you need this to live, or do you simply want it? For instance, your child’s monthly gymnastics expenses is a variable expense. It may be a set price that does not fluctuate from month-to-month; however, if money was tight, this is an expense that can be cut so that you can pay your mortgage or utilities.
This is where your past three months of bank statements and credit card statements come in handy. Pull those out and sort each transaction into your budget categories. This exercise will give you a good grasp of your spending and how much you should create your budget amounts.
Calculate Your Amount Left
It’s time to calculate your net income. Your net income is your take-home pay minus your expenses. This is the amount you have left after all your bills are paid. You want this to be a positive number so you can put this amount towards your financial goals. If your net income is a negative number, then you will need to adjust your expenses in the step above.
Adjust Your Expenses
If you had a negative net income, you will need to adjust your spending. There are several ways to go about this, but the easiest is to look at your variable expenses. It’s much easier to adjust the number of times you eat out in a month to save a little money than it is to lower your mortgage payment. However, if you have tweaked your variable expenses as much as possible and are still coming up short, you might have to look at your fixed expenses. Talk with the bank to refinance your payments.
Be sure to evaluate your spending on a want vs. need basis. Simply wanting something is not a good enough reason to have a negative monthly net income.
Set Your Goals
Once you have a positive net income, it’s time to set your financial goals. You and your spouse should set these goals together to be sure you’re on the same page. You can have multiple goals to work towards. I recommend having one or two short-term goals that will take less than a year to reach and one to two long-term goals to work on.
The amount you have leftover each month is what should be set aside to reach your goals. If you’re working on more than one goal at a time, that’s fine; you will just have to portion money out.
Track Your Spending
Now that you have your budget created, it’s time to put it to work. Be sure to track your monthly spending so that you can easily update your budget. That’s where software comes in handy. Most can be connected to your bank account or credit card account and will categorize your spending for you.
Check-In Each Month
It’s important to check in with your budget each month to make sure you’re on track. Going over your budget will help you determine where you are spending your money and if any adjustments need to be made. For instance, if you find it difficult to stick within your grocery budget month-after-month, you might need to increase it by decreasing another budget area.
