Putting together a family budget doesn't need to be complicated. Take a look at this beginner's guide so you can easily plan and track your household finances to be well on your way to financial freedom.
How to Create a Simple Family Budget
Have you been discussing a family budget but unsure where to start? Sometimes it's good to begin with the basics, such as the basic outline for a budget and the categories you want to include.
Here are some tips to help you formulate a simple family budget.
Basic Outline for a Budget:
- Bring both partners together.
- Track income and expenses.
- Trim costs.
- Build savings.
- Get out of debt.
- Check-in frequently
Here are our Top Tips to Stick to Your Family Budget.
Family Budget Categories
Before we dive into the outline for a reasonable budget, let's take a look at some percentages of where most families spend their money to give you an overview:
Get on the Same Page as Your Partner
We know it seems simple, but making sure you and your partner have the same goals and expectations with your budget and finances is an important first step. We weren’t all raised with the same values when it comes to money, and making sure your priorities and goals line up is critical to creating a family budget you’ll stick to.
It's also essential to get everyone in the family on board.
The more inclusive your budget is, the more likely it is to work well for your family. Include every family member who is old enough to understand. A budget affects everyone, and it's a good idea to listen to input from other family members.
The first place to start in the outline of your budget is with your total income. There may be some estimating here, no doubt; but make sure it's an estimation, not dreaming, say experts.
The income area of your budget is not the place to write down your ideal income, but your actual income.
Simply take a look at your net income over the last three months (the amount of money you get in your paycheck each month) and estimate an average monthly income. Or you might have income that changes very little month-to-month; it should, therefore, be pretty easy to figure out your monthly income.
Your next category should be expenses. It's good to include enough detail that you have a grasp on things, but splitting your expenses into dozens of little categories will probably only frustrate you.
Try to make your categories fairly general - "entertainment," for example, is a more general category than "computer games, movies, Netflix, and streaming services" listed as separate categories.
There will probably be more estimation here than in the income category, but this will get more precise as you continue budgeting over the year.
As you break down your expenses into understandable categories and numbers, remember that charitable giving or any giving away of money should be also listed as an expenditure.
Trim Family Expenses
Estimation gives way to "real" numbers when you write down your actual expenses during the month. This is the last section of your budget plan. Keep a running tally of your expenses for several months, and then look at where you are.
Take a look at where you can trim expenses. Eating out is a big one. This can usually lead to significant savings. Other ideas include buying in bulk and meal planning.
Here is an online budgeting worksheet.
Some Basic Budgeting Principles
Let's pause the overall budgeting process for a second to examine some principles that are considered budgeting basics as it relates to your expenses.
Distinguish between wants and needs. This can be a hard one, but your budget needs to function properly. Beware of convincing yourself that a want is a need when it isn't - you may just be trying to find an excuse to buy the item. Do you need that Dollar Spot item from Target, or could you pass on it and be just as good?
Real needs are things like clothing, food, and shelter; but designer clothes, gourmet food, and an Insta-worthy house are more like wants!
Expenses should not exceed income.
You may find yourself surprised the first time you do a budget and find out that you don't make enough money to cover your expenses. If you discover this, you need to look carefully at your income section and see where you can increase it, and look just as carefully at the expenses and see where you can make cuts.
Start with our 30 Ways to Save Money ideas and tips.
Build Savings into Your Family Budget
It’s essential to build an emergency fund as well as save for your future. If you have any student debt, pay that first, then start a fund with 6 - 12 months of savings to cover your monthly expenses, just in case.
Once that is established, start saving for retirement and your children's education.
Get Out of Debt
As mentioned, you need to tackle any student debt you may have, but also look at credit card debt and make a plan to pay this off since making interest payments can weigh you down and slow your ability to save for the future and achieve your goals.
Check-In On Your Family Budget
Meeting monthly to review the previous month's spending and look forward to the coming month's expenses can help you and your partner stay on top of your family finances.
Tip: Make your budget check-in a date night, and it might not seem like such a chore to evaluate your progress.
How Much Should We Save?
How much to save is an excellent question! It will vary depending on your income level, goals, and when you start saving. However, according to a JP Morgan study, if you begin saving around age 25, those earning an average income will need to save 4% to 9% pre-tax to be able to retire at age 67.
The bottom line, saving shouldn’t be an afterthought. The best advice we can give is to save as much as you can.
Related: How to Save Money for Holidays
How Much Should I Budget for Food?
This is a question we often get. Food is such an essential part of life and your family's household budget. When not cooking or consuming food, we’re thinking about food, right?
Generally, spending 10% - 15% of your overall budget on food is a good target to aim for.
Meal planning will always help bring focus to your food consumption and help keep your budget in check. As always, track your food expenditures for a month or two and take a look at what you’ve spent versus what you’ve budgeted to make any adjustments.
In conclusion, getting your finances under control is one of the most important things you can do for your family. We are living in such a consumer-hungry society, so take a moment and think if all of this spending is making you any happier or financially stable and make adjustments accordingly.
Taking steps to create a simple family budget will help you achieve the life you want and make you feel so much more confident about your spending and savings.
Read Next: 10 Quick and Easy Ways to Simplify Your Life