Managing money requires time and thought, especially when you have an entire family to care for. In order to help, here are three simple steps to create a family budget.
1. Add Up Your Income
A family budget can help you know where your money is going and help everyone be on the same page about spending and saving. The first step in creating a budget is to figure out how much income you have. Start by looking at the last few months of paychecks for anyone in the house that is working to get an idea of how much each makes on average. Then, think through any extras you receive in the month, like funds from freelancing, lawn mowing, or side hustles.
If you don’t have a regular income, you should start with the lowest amount you usually make. This can be adjusted as you make more.
2. Itemize Your Expenses
The next step is to figure out what you’re spending money on. Look through your bank statements, if you need to, where your bills and automatic payments occur. Remember also your essential spending like rent or mortgage payments, utilities, car payments, and food.
Then, think of whether you have insurance payments, any debt to pay off, if you’re putting money in savings, how much you spend on entertainment, pets, after-school activities, and other similar things. If you’re unsure, just make a good guess, and adjust it as needed.
3. Do the Math
Add up your income, and then add up your expenses. Then, subtract your expenses from your income. If you have money left over, it’s essential to put it in the budget. For example, you could open a new savings account for college, buy that new Ford for sale, spring for a family vacation, or use for a rainy day. If you know where your money should go, it will be easier to not overspend or spend on frivolities.
If you do the math and your result is a negative number, it’s okay. Instead, go back through your budget and figure out where you could spend less. Start with categories like entertainment, eating out, or consider saving less each month for a vacation than what you were planning. It’s important not to spend more money than you are earning!
Put the Family in “Family Budget”
A family budget should involve the whole family. That doesn’t mean you need to tell your kids how much you make, but you can share financial goals. For example, if you want that new car, share that goal so the enthusiasm spreads. It will be easier, as well, when your kids ask you for something to gently remind them of your financial goals.
It’s also an excellent opportunity to talk about wants and needs with your kids. Of course, you always have to budget for your needs, but your wants must be flexible. Also, it can help kids learn to prioritize. There won’t be enough money for everything they could want to do, so figure out together what is most important and how to make it happen.