There are many ways that you can budget your finances, however, there is one distinct issue with most financial budgets that will always stand out most.
A majority of budgets won’t include those one off occasions; birthdays, Christmas, emergency expenses, and so on.
And that means that while the budget will typically work fine for the most part of the year, when these occasions come along and chip into our budget, we are often left wondering where we went wrong.
Budgets are important, and everyone should consider having one, it is just healthy money management.
A budget can balance out your wealth, ensuring you can always pay your bills, rent and utilities are always paid, your food is always covered, and you have enough savings for that dream holiday, or in case you end up having an unexpected expense come thundering your way. It is the pinnacle of financial security.
And if you love this guide on family budgeting, make sure you check out our guides on free family activities to do on a no spend weekend, family fun night ideas, and reasons why spending time with family is important.
Why Should You Budget Your Family’s Finances?
Budgeting is not just for people who are in debt or who need to handle their finances with more caution.
Budgeting is for anyone who is seeking to stabilize their finances and avoid debt. If you take out a loan, then budgeting is a great idea as it will ensure you will be fine to pay off the loan in the long term.
If you have just had a child, budgeting is handy here because it can ensure all your basic living expenses are covered, and you can now manage how much money you have to spend on things for your family life.
Budgeting does not inhibit your freedoms, either. Many people believe the myth that it does, however it doesn’t.
Having a budget in place, does not have to mean that your finances will be only for 100% needs, having a budget can help you to simply manage your spending on necessity too.
This means that you can set a limit on your spending on things you buy for fun, so you can still spend for joy, simply without carving a hole into your bank account.
Some people may just decide to balance their checkbooks instead, and sure, while this is a good idea, it is nowhere near as useful as actually building a budget.
Budgets can prepare you for sudden expenses such as car repairs, doctor visits, or utilities breaking, but a checkbook cannot.
Budgets can make us more likely to avoid any excessive debt, help us to build emergency and long-term savings accounts, take care of financial priorities such as food, housing, transport, and such instead of unnecessary spending on dining out and entertainment.
They help us to establish good investing habits, feel in control, understand how we spend, and get us into a better position to take advantage of financial opportunities, be they paying attention to sales, or simply improving investment portfolios.
It can also prevent multiple spousal arguments around finances, and makes you more able to make more than just minimum payments to credit accounts, such as credit cards, mortgages, and auto loans.
Tips For Starting To Budget Your Family’s Finances
Budgeting if you have never done so before can be a daunting idea, it can seem overwhelming, and therefore having someone there to give you tips on how to go about starting up your budget can be more helpful than you may think.
Budgeting can be done for one person, two people, or your whole family. Just remember that if you are budgeting for multiple people that you have more factors to take into consideration other than just your own personal factors.
You need to consider other people’s incomes, and spending habits, and communicate effectively with them in the goal that they will join you in monitoring and sticking to the budget that is created.
If the budget is for multiple people in a household, then everyone requires working together in this, if not it simply will not work.
So, let’s take a look at these tips on how you can budget your family’s finances to help you on the way to better financial security.
Calculate Total Income For Your Family
The first step is to calculate the overall income of your household.
As a family this means everyone needs to consider their income, this can be anything, even if it is just a few dollars a week, it should all be considered so that everything is managed.
A good way to additionally manage the overall income of the household, is to have a folder, or file for everyone’s finances, payslips, bank statements and so on.
Not only does this mean that all the information is in a particular place, it also means that this information will be hard to lose, and is on hand if needed.
You could have one file for each person, or even a filing cabinet.
When you want to create a family budget, having everyone’s income information will help you better understand the total income of the household and craft the budget better for each person.
This is also a great way to help your kids learn about money too.
Identify Your Budget Goals
Budgeting is great, but the thing that really makes a budget work, is goals. Any budget will work best when it is tied to personal goals, this could be something as simple as a vacation.
Without relating your spending plan to a goal that requires financial awareness, your budget will likely not survive. Goals will give purpose to your budget, without this, it just becomes boring and tedious math.
Everyone who tries budgeting, typically finds that their ideal expenses will add up to more than their income, and it is frustrating.
To gain resolve does require sacrifice, if you do not have budgeting goals the frustration that comes with seeing these roadblocks will usually lead to either desperation or the simple abandonment of the budget altogether.
Think of what your goals are, do you want to be able to take a two-week family vacation abroad every year? That’s a great goal to have.
Identify what your goals are, what requires you to sit there and do math, save money, and make those hard choices? How much will you need in total, and how much will you need to save each month to reach this goal?
If you are worried you will fail, share your goal with someone else, tell them about it, and discuss your budgeting with them. Doing this will likely lead to you feeling more dedicated and committed to your budget and help you see it through to the end.
Gather All Statements and Receipts
We can often get a bit bored when it comes to having to manage our finances, it seems so droll and dull, we can sometimes just want to give a rough estimate.
Try to avoid this temptation. A rough estimate will not give you the information you need to successfully budget correctly.
A budget can only be truly successful if you provide accurate ingoing and outgoing financial data. It is also the only real surefire way that you can be 100% certain that your financial data is solid and accurate.
Get out all bills and statements in front of you in black and white, whether you do your banking online, or if you collect the paper statements does not matter, whichever you use, collect the information in black and white, and get that solid information in front of you.
You should also get an idea of monthly spending habits, the best way to go about this is to use the last months’ worth of bills and receipts to paint a financial picture of the spending habits in your family.
You should also remember to factor in not only bills and receipts, but also other quarterly expenses, things such as TV licenses, water bills, and any subscriptions you may have.
Factor in all of this information to ensure that the information you are generating is accurate as it possibly can be.
Ensure You’re Factoring In The Whole Family
Make sure that you are considering the whole family when you create your budget. Always consider who the budget is for, and be consistent when you make your budget plan, as well as when you make any alterations to it.
Think about who is in your household, who the budget applies to. Is it just going to apply to you? Will it be a budget for you and your partner? Is the entire household being factored into it? Are you pregnant and needing to plan for your baby as well?
Be accurate with it and try to factor in all the information you can. Finances often cannot be separated when it comes to this, in this case, you should sit down together and do it.
If you are doing the budget for the full household between you and your partner, and you have a child, consider how you can include them.
If your child is old enough, and they get pocket money, or have a paper route, etc., consider letting them in on the discussion, even if they are not a prominent participant in the budget, this can give them an opportunity to learn about budgeting.
Teaching your kids about finances and how to manage their money early on is very beneficial.
As you draft up your budget, you could get them to try to budget their money too in their own way, even if they do not have much, or just get a few dollars as pocket money or a paper route, you can use this as a way to teach them.
This doesn’t only educate them, but it includes them in the families financial decisions too.
Ensure You’re As Accurate With Figures As Possible
Make sure that you are always accurate with your finances.
As we said earlier, while it is tempting to guess and anticipate your financial income, and make educated guesses, it is still not accurate, and it can lead to problems further down the line, so it is just best avoided.
You can also be a bit tempted to underestimate how much you spend as well, doing this is a sin when you are trying to be financially wise.
Be accurate, and if you are not sure, guess larger, not smaller, as this can always lead to a happy surprise, not a shocking one, giving you cash left over, rather than being short.
You may also find that some types of spending may also overlap into different groups when you are budgeting, so you should be cautious as not to count the same expense two times when you are formulating your budget.
So if you were to have car insurance, if you placed it in a section under motoring, do not include it again under insurance.
If you have a Netflix subscription, and have it listed under subscriptions, do not list it again under entertainment, and so on.
Make a list of all your expenses first and decide what category they will fall into, then formulate the budget, to avoid any inaccuracies or mistakes.
Check Your 401(K) Payments
Do not forget this part of your financial life. Some of us contribute to pension schemes such as a 401(K).
If you do, be sure to make note of it, especially if you contribute via check or if you have an automated payment set up from your bank account each month.
Most 401(K) will come straight out of your salary however, if this is the case then there is no need to include it, as well you fill in the section where you talk about your income, then just fill in the net amount of pay you receiver after any deductions are made, such as taxes and your pensions.
If you are saving up for retirement, however, this is a different story, and you should pay attention to it.
It all depends on how you manage your money and what you are saving for. If you decide you want to save and budget for an exciting retirement, then factoring in your 401(K) is worthwhile.
However, if you are saving, so your kid can go to college, then ignore your 401(K) and just let it sit there, it’s not important for what you are doing.
Ensure All Spends, Including One Offs, Are Included
While budgeting for the regular expenses is very significant, it is also very key that you do not forget about the one-off spends, things such as birthdays, Christmas, and emergency expenses that may come into play as well.
Even things such as holidays, purchasing a car, or just a special treat, always include those one-offs.
Ignoring these expenses will leave you behind in your budget wondering why it’s not working and what math you did wrong.
One good way to account for this is to budget these expenses into monthly amounts, so, if you spend $2,000 on a car over the course of one year, then this would equate to $167 per month under “Car”.
If you want to ensure you can always buy people birthday gifts, then set an amount that you will spend for everyone’s birthdays, If you capped the amount at $20 per person, and there are 10 people who you regularly buy birthday gifts for, then anticipate $200 over the course of the year and put this down as $17 per month as ‘birthday gifts’.
You can do the same thing for Christmas too.
Another way to ensure you incorporate your one-off expenses is that when you do, do not forget to subtract regular spending as well, as is with holidays.
So, if you were to usually spend $100 a week on your food shopping and $40 on gas, you won’t spend this when you are on vacation, so subtract this amount and ensure your budget reflects this.
Consider Ways To Cut Costs From Your Family’s Spending
Do not be ashamed about overspending, we have all been there, when we take a look at our bank account and are suddenly shocked because we are so sure we had more in there than that.
It is common and not something to be ashamed of, it just means you need to think of how you can cut costs.
Consider how you can cut your costs. You can cut in many ways, even in your bills. You can consider if you can cut down on your big bills first, things like utility, taxes, and even your food shop too.
And work down from there, see what other expenses you have, and where you can cut them down.
Consider your subscriptions, too. Do you really need to have Netflix, Hulu, and DisneyPlus? Or can you get rid of one of them?
Do not be afraid to look at the small expenses. Even things such as how much you spend on coffee each day.
Do you usually go to Starbucks and spend $4 on your morning coffee? Why not make one at home, or find an unbranded, independent coffee shop which might sell coffee for $2 instead. Even $2 saved per day can add up to $730 saved per year.
Consider if you need those magazines, could you quit smoking, cut back on chocolate, and so on. Consider your lifestyle and if you can make any changes that will help you save better?
Ask ‘do I need this?’ and then ‘If I need this, can I do it more affordably?’ Such as with our coffee shop example, it is not uncommon that branded products are pricier than independent sellers, consider using these more, independent sellers will not only be cheaper, but they will also benefit greatly from your business. It’s a win-win situation.
Ensure All Lifestyle Choices Are Affordable
This relates a lot to what we are saying above. There are many ways that we can make our lifestyle choices more affordable, and quite frankly, this often means healthier choices too.
If you smoke, you can consider cutting back, or even quitting, saving you those exuberant costs of cigarettes and saving your lungs at the same time.
If you go out for some drinks every weekend, why not cut it back to every other weekend, or even once a month? Alcohol is not the cheapest of things. If you do enjoy a drink, why not have a get together at home instead?
Buying your drinks from a store rather than at a bar, as bars are typically much more expensive.
Can you walk to work and save your car’s gas for a longer trip? If you go out for lunch every day at work, why not take your own instead?
There are so many ways that we can alter our lifestyle to become more financially lucrative. If you did every single one of these things, you could end the year having saved money four figures long!
Identify Potential Weaknesses and Plan To Avoid Them
We all have weaknesses, some of us cannot resist a certain type of food, some of us love purchasing from a certain location.
We all have weaknesses, and sometimes it is so hard to resist these temptations that we lose ourselves in them a little.
Try to stay away from these temptations, while you might love that sushi restaurant your budget probably doesn’t, and even though you love to shop at that high-end store because they sell your favorite stuff, your bank account might scorn you for it.
When we are trying to be more careful with our money, it is important that we identify where our weak areas are in spending, look over bank statements and see where we have spent money that we really didn’t need to.
Have a think about how much money you are spending that has no real use. Of course, this doesn’t mean you can’t treat yourself, sometimes we need that for our mental wellbeing, however, we need to remember that keeping an eye on these weak areas in our spending habits is key to successfully maintaining a budget.
Consider Budgeting To Build An Emergency Fund
Building an emergency fund into your budget is always a wise move. With so many unexpected and potential problems we can have, building in a fund just for one-off emergencies is very significant.
An emergency fund is not only something that could cover a sudden medical bills, or an economical disaster, but it could be your safety net in the case of an unexpected job loss, sudden car maintenance, and so on.
It can save you in multiple areas, and it is very wise to have one in place.
So, when you are building up your budget, you want to budget for your needs, bills, rent, food, and so on, then take into account savings and necessity, and also build in an emergency fund too.
Savings and an emergency fund do not always need to be significant amounts. It is up to you how you craft these savings, however, even if it is just a couple of hundred dollars, it really could be a saving grace if financial strife suddenly hits, and you are stuck in a rut.
An emergency fund can even be the difference between ending up in debt, and staying out of it. It could be the difference between having to take out a loan, and not having to. There are many ways in which an emergency fund can assist.
We know there are plenty of people out there who would say ‘I will never need that’, however, there is no guarantee that you will always be financially stable, and having that emergency fund in place, can truly make a difference.
What Is A Debt Spiral and How To Avoid Falling Into One
A debt spiral is pretty much what you’re imagining right now. For so many, a spiral of debt begins in their student loans.
With an estimated 43 million Americans having student loan debt, averaging at around $40,000. Sadly, they are often required to pay for tuition in undergraduate or graduate degrees.
As this type of loan is one of the most common due to cash payments for this is unfeasible for most, this is commonly where it all begins.
And, while you are in education, you are accumulating debt when you do not likely have enough income to make even one loan payment.
This is where it all begins. You may also have credit cards, and then you may end up needing a car loan to purchase a vehicle, then a mortgage comes shortly after, and soon enough you have so many loans, all taken out just to live, basically.
Some will take out another loan, a debt consolidation loan, so at least you can bundle them all together, with a lower interest rate, as one debt. It can be a smart move, but it can also keep you deeper in debt.
This slowly eats at your credit score, meaning you can no longer borrow at decent interest rates, and then high-interest rates will restrict your cash flow, and can eventually lead to bankruptcy.
To break cycles such as this, you should stop borrowing. Credit cards are one of the biggest culprits of creating debt, so put that plastic away and stop using them.
Using debit cards, or cash, and see how much money you really spend. Also look at income and expenses, and yes, you know it, create a budget!
Even if you do not go hardcore into budgeting, it is worthwhile periodically looking over what you spend, so you can get a good view of where your money is actually going.
You may realize that your income and your outgoing cash flow do not match, you might find yourself to be a bit of a spendthrift, or perhaps you may realize that if you cut back on one or two things, you can finally end the cycle of debt in a couple of years.
This is one of the upsides to budgeting, sometimes, just creating a budget can actually let you see how easily you might be able to get out of that debt spiral you are in.
What To Do If You Overspend
If you overspend, do not feel bad for it, it’s normal for people to do that before they realize exactly what is going out of their bank accounts.
There are some ways to help you reduce how much you are overspending, which should be your first thought when you discover how much you are spending.
First, start making some pain-free savings.
Just ensure that you live as you do, but pay less to do so, so yeah, grab that independent shop coffee instead of a Starbucks, don’t buy that branded food at the superstore, by the store’s own make, see if you can cut back on tax, and so on.
Of course, look into obvious things such as credit cards, energy bills, and your mortgage, but do not forget the little things too.
Then also look into rebudgeting what you expect to save. Incorporate what you predict to save.
If you are spending within your means now, you do not need to save more, however, if you are still spending more than you earn, you might need to make some painful savings, perhaps cancel that Netflix subscription, don’t pick up a paper on your morning commute, skip that chocolate bar, and avoid pricey parking fees.
Overspending will drag you into debt, and then it may spiral, so catching it fast and making those cutbacks can really change your future.
Making a budget does not need to be tedious, but make sure it is goal-oriented. Include everyone in your family when you make a budget, and do not be afraid to let it be a chance to teach the kids how to manage money.
Consider every aspect of your financial life when you make a budget, think about how you spend your money, from rent and mortgages, all the way to your morning coffee and where you buy your lunch.
Even the tiniest change can be significant, after all, saving a dollar a day means you end the year with $365 more.