What Is The Family Budget And How To Create One That Works?

What Is The Family Budget And How To Create One That Works?

The family budget is one of the key aspects of personal finance that every person in charge of a household must take into account.

Basic money management in the family budget has to do with the ability to meet family expenses, manage and pay unexpected bills, and save for the future. Proper family budget management puts people in control of their money, helping them avoid financial stress and feel more secure.

What is a family budget?

Before establishing the importance of a family budget and its benefits, or how to make a family budget and stick to it, it is key to define the term. A budget is simply a way of planning the money you have – everything that comes into your hands (income) and everything that ends up going away (expenses).

So a family budget is when the head of a household or the family as a whole makes a plan for all the money in the household. The best family budgets are those that include all family members and their perspectives on household money management (at least to some degree).

Key aspects of family budget management:

Communication in the family plays a key role in good money management. Honest conversations as a couple, if you have one, can help you avoid conflicts that arise over money. It’s also important to involve children in budget management discussions so that all family members can more easily achieve their goals together.

Why is it a good idea to have a family budget?

A family budget is essential for people to be able to manage their money correctly, and for them to be able to achieve all their financial goals.

The family budget can help people to:

  • Spend your money more wisely on must-haves: These are family necessities.
  • Saving money for things family members like and can’t live without are family wants.
  • Being able to have money for unforeseen expenses. For example, if the car breaks down and needs to be repaired, or if a family member gets sick and needs special care.
  • You stop accidental overspending.

Establishing a way to manage the money a family needs for everyday essentials like food, housing, basic services like gas, electricity, telephone and water, transportation and medical services can help people ensure that they have enough resources for unexpected expenses and emergencies.

Important: The family budget can help people meet their needs, controlling their money wisely. It also helps them avoid debt, allows them to enjoy family life, and saves the family from spending too much time and energy worrying about their finances.

What are the benefits of having a family budget?

A family budget has multiple benefits. Here are the three most notable benefits of this financial management tool:

  1. The family will stop worrying about where the money is going, and instead, start deciding where they want their money to go.
  2. All members of the family will be clear about what happens to the money in the home.
  3. The leaders of the home, the parents, will show their children that money is not a taboo subject and will teach them the correct ways to manage it, establishing clear lines of communication.

How to make a family budget in three easy steps

Step 1. List your income

The first step here is to make a list of your household income – also known as the money you plan to earn throughout the month. These are the income of the parents, of one of the parents, or of the people who contribute to the support of the household.

The family should start listing the checks they receive and forget to record the payments or the extra money that can come in when doing part-time jobs, or when doing garage sales, freelance work, or any other similar type of activity…

Step 2. Make a list of your expenses

Now that we have a plan for the money coming in, we can also start planning and recording the money going out. It’s time to make a list of family expenses. (A tip that can help: Open a bank account or look at your bank statement so you can review and estimate your expenses.

Four main areas can be covered to start keeping track of expenses properly: Food, bills, housing, and transportation.

These are the expenses that we consider fixed, which means that we will always have this expense each month (for example, the payment of the mortgage or the rent of the house). Other expenses may vary, such as food and occasional snacks.

Because expenses and food and cravings can be difficult to estimate at first, it’s best to make a rounded estimate, so you can learn to see what you need to spend each month for this item well in advance.

The next step is to list the other monthly expenses. Some of these may also be fixed or variable. Here we include purchased insurance, debt, savings, entertainment, and personal expenses. It’s always best to start by listing fixed expenses, such as auto or life insurance. What you can do in the next step is to use your bank account or bank statements to estimate the amount of money you plan to spend during the month and any money in addition to fixed expenses, all based on spending from previous months.

Step 3. Subtract your income from your expenses

When you subtract your income from your expenses, the resulting amount must equal zero. This does not mean that your bank account is at zero, what it means is that each part of your income has a function. (This is what is called a zero-based or zero-based budget.)

If you have money left over after you’ve subtracted all of your expenses from your income, be sure to budget that too. Otherwise, you’ll end up spending it on cafes and those one-click discounts for things you don’t need. What is the best you can do? Put in anything that works as an “extra” toward meeting your current financial goals, like saving, investing, or paying down debt.

What to do if you end up with a negative balance after subtracting your expenses from your income? You might think that this is something unimportant, but this does not mean that things are fine in your finances. Here what you have to do is start cutting your spending until your income minus your expenses equals zero. One key to achieving this is:

Start with those expenses related to dining out and entertainment expenses. So you have to have something clear, to have healthy finances you cannot spend more than you earn. This is a fundamental part that you must understand.

Remember: You have worked hard to get the money you have earned. So your budget must also work hard for you: Every bit of dollar or income.

Tips for creating a family budget that works (For everyone).

1. Select a budgeting method

The first thing you need to do is select a budgeting method. Whether you use Excel sheets, a pen, and paper, a phone or internet application, or a Word sheet, select a way to record your income, expenses, and expenses: For each month.

Whichever method you choose, this method must meet some basic requirements.

  • It must be easily accessible to the managers of household expenses, who are frequently the parents, and the couple.
  • You must have an easy way to create new budgets and monthly records.
  • You must have an easy way to track all the expenses that are made throughout the month.

Right now we’d like to suggest our favorite budgeting tool, EveryDollar. This application meets all those requirements and some more of your interest.

With EveryDollar, you can budget from your computer or your smartphone. This means that both spouses can log into the same budget from different devices, and both can check how much money is left in the budget, and stay up to date on the expenses that are being incurred. This creates a space of responsibility, which is key to the success of the family budget.

With EveryDollar it’s easy to make monthly budgets in a matter of mere minutes, so the app not only helps you save money but also time.

2. Talk to your partner about where they are now financially.

You can set how much money you want to share with your children based on their age and how comfortable you feel with their spending. Maybe you don’t want to specify how much money you earn or the exact amount of each of your bills. But having an honest conversation with your family about where things stand financially can go a long way. Right now is the best time to have that conversation.

After that, you can talk about where you want to go, depending on where the finances are at home, and where you want the family finances to go. Keep the lines of communication open and make talking about money feel normal. It might be a little awkward at first, but after that things will be a lot easier when it comes to talking about money with your family.

3. Discuss the differences between wants and needs

For any family’s budget to be successful, you need to explain to your children (and perhaps remind yourself) the difference between wants and needs – and how important it is to meet needs first. This means budgeting for the fixed expenses, which we mentioned a moment ago before you and your family decide to head to the nearest restaurant or museum for a day of entertainment.

4. Communicate with your children to prioritize expenses that connect with them

You probably don’t have enough money in your budget for your children and for them to be interested in the budget. And that’s fine. It is not a bad thing in itself.

When it comes to extracurricular expenses, club fees, sports, lessons, and the like – talk to your kids about the fact that all of these things cost money. Doing one thing during the holidays, and one thing only, for them to spend their free time is more than enough for your budget. Talk together to find out what would be the best way to spend the money on extracurricular activities.

And when you put them all into the budget, be sure to include something in the family fun budget line (if you have the money to cover it).

5. Create financial goals together with your family

Start setting financial goals with your family members. These goals can connect several things, such as paying down debt or saving money (saving money for emergencies, making a big purchase, or a fun family experience).

It talks about how everyone can get involved in making these goals a reality. Ways to do this come in the next tip.

6. Track the progress of your financial goals

Let’s say you are saving for a family vacation. Set a number of goals for this financial goal– and track your progress together with your family.

If you are using EveryDollar, you can set up a savings fund for your goal and see how you are progressing toward achieving this goal.

Do you want things to go faster? Having a family meeting to brainstorm can help make this a reality much sooner than expected. Decide to adjust or cut your spending by avoiding outings for a couple of months. Take part-time jobs (some of these you can even do from home). Even the kids can have a garage or front-of-house sale to help the family reach their financial goals faster.

Including children in this process teaches them how finances work – and how what they do can impact the family in multiple ways. Life lessons are where you least expect them.

7. Have monthly meetings to discuss the budget

Monthly budget meetings are one of the best ways to keep the lines of communication about money open throughout the year. These are the things you should be thinking about before and during these meetings.

Each month comes with a set of things to spend your money on – as well as more specific expenses that are not usually fixed. Budget planning meetings to talk about these things can change spending patterns for sure. Also, talk about the things you’ve struggled with within the last month, celebrate the victories, and track how you’re heading toward your goals.

8. Make paying off debt a priority.

14.64 trillion dollars. This is the total amount of debt of US citizens. That was at the beginning of 2021. We are not kidding.

Debt constantly knocking on our doors like a traveling salesman tempting us with “rewards” and the promise of instant gratification. But really, all debt does is hold your income hostage to the past.

So it’s time to close the door in the face of debt. Don’t be a part of that tragic statistic of 14.64 trillion dollars anymore.

The best way to get out of debt is for everyone in the house to be able to talk about it – make paying down debt a priority for everyone. Talk about it. Put the conversation as something of importance. Create a music playlist and have a dance every time you make more than the minimum payment on your debts. Learn how debt works and stay aware of the importance of making debt principal payments to reduce interest payments.

You have to be motivated throughout the entire budgeting process with the idea of ​​paying off your debts. You will find ways to celebrate victories (big and small). And your family has to do it with you – as a team.

9. Track your expenses throughout the month

We’ve already mentioned how tracking your spending throughout the month creates communication and transparency with your partner and family. But guess that? It also helps you to be transparent in front of yourself.

Yes. Sometimes you are the person you need to keep an eye on and be on the lookout for when you’re setting up dining out and sundry expenses.

But tracking your expenses shouldn’t come hand-in-hand with the bad reputation of being a cheapskate or spoilsport. Yes, it’s about being responsible. But people who are responsible for their money are people who take control of their money – instead of letting money control them. People who are responsible for their money don’t wonder where they will be at the end of the month. Therefore, tracking money is a worthwhile thing.

If you don’t want the money you spend on your family to end up keeping you away from your financial goals, then you have to be aware of your spending. Track your expenses.

10. Adjust your budget when necessary

Brakes, arches, and budgets. What do all these things have in common? They all need to be adjusted to work well.

Yes, what you are supposed to do is adjust your budget during the month. As you track your transactions and see that you’re maxing out on your budget, you have two options. One: Say no to more spending. Two: Restructure your budget.

The first option is always the answer for the extra expenses and optional tastes. When your spending line is over, it’s because it’s over. When the restaurant budget line is over, it’s over.

But suppose the electricity bill was higher than planned. You can’t tell your electric company that your budget line for energy has run out and that they take back the energy you already spent during the last month. No. You just have to pay the bill. And you have to find the money for them by adjusting spending on a different budget line.

A budget is not like a pot that is simmering. You can’t turn it on, set it, and then forget about it. You have to stay on top of things and make changes when necessary so that your budget works for you and your family.

11. Make your children work on household chores so that they earn the money you give them

Much of the family’s money goes into raising the children when they grow up. But one thing you can do is encourage your children to earn the money you give them by doing small chores. This will teach them how the world works. They do some errands, and they receive some money in return. Then they can save money to pay for the things they need or want.

Start making your kids earn the money you give them by doing regular errands so they can learn the value of money and hard work, and how these two things are interconnected.

12. Don’t be afraid to talk about money.

If all of this seems awkward at first, know that this is normal. Statistics show that only 28% of parents talk to their children about money. That’s not a good enough number.

Let go of feelings of discomfort that are holding you back. Budgeting with your kids teaches them how to make and spend money wisely – These are the two best foundations you can build in your kids that will help them be successful with money later in life.

You know how the saying goes: The family that makes its budget together, grows together. (Okay, maybe we’re the only ones saying this, but it’s true.)

And finally, don’t forget to use EveryDollar or any other tool that helps you stay on top of your budget, so you can stay on top of it and stay in control of it

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  • What Is The Family Budget And How To Create One That Works?

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