With life pulling us in different directions, it’s hard to find the time to create a workable monthly family budget — especially if you want to become debt-free. It’s important to take control of your family’s finances and to create a solid 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 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 to talk about finances without interruptions. Before you start, grab bank and credit card statements for the last three months, recent bills, and earnings statements.
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, you can easily pick up a pad of ledger paper to get started; however, if you prefer to keep your budget online, you will have a few other options. You can create your budget in Google Drive, using software like Quicken or 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, list your variable expenses, which are the bills that fluctuate from month to month. These include eating out, groceries, gas, personal care, etc.
As a family, deciding what is fixed and variable can be challenging. Applying the want vs. need rule to your expenses is a good rule of thumb. Do you need this to live, or do you want it? For instance, your child’s monthly gymnastics expenses are a variable expense. It may be a set price that does not fluctuate monthly; however, if money is tight, this expense can be cut so that you can pay your mortgage or utilities.
This is where your bank and credit card statements come in handy for the past three months. 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 negative, you will need to adjust your expenses in the step above.
Adjust Your Expenses
You will need to adjust your spending if you have a negative net income. There are several ways to go about this, but looking at your variable expenses is the easiest. It’s much easier to adjust the number of times you eat out in a month to save a little money than 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 for 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 left over each month is what should be set aside to reach your goals. Working on more than one goal at a time is fine; you just have to portion the money out.
Track Your Spending
Now that your budget is created, it’s time to put it to work. Be sure to track your monthly spending to update your budget easily. That’s where software comes in handy. Most can be connected to your bank or credit card account and will categorize your spending.
Check-In Each Month
It’s important to check in with your budget each month to ensure you’re on track. Reviewing 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.
