How To Create a Family Budget: Start Right Here

This brings us to the family budget process. You might ask questions like:

• How do I set up a family budget?
• How should a family budget be used?
  

Insights around the tools and techniques of family budgeting can also be useful:

• Practical suggestions for setting up a budget?
• A step-by-step summary of a family budget process
• Hints, tips, tricks and tools for setting up a family budget

Stay tuned for more…

To get us started and in order to set up a monthly budget, follow these five easy steps:

STEP ONE: find out your monthly take-home pay.

STEP TWO: find out what your expenses are.

STEP THREE: find out how much you spend on each expense.

STEP FOUR: see if your monthly expenses match monthly take-home pay.

STEP FIVE: Balance your budget. This means in your family budget you need to ensure that you are spending matches take-home pay. It might indicate that you have to cut back on spending to balance.

It sounds too good to be true and too simplistic. However, in the end, that is all there is to this family budgeting process! Initially at least. Let us look at these steps one at a time.

1. Finding out your monthly take-home pay.

Your income is your pay, after some money is deducted. Think taxes, insurance and Social Security. Answer the following questions:

• What is your monthly take-home pay?
• Do other people share expenses in your home?

As mentioned before, total all of the households’ monthly take-home pay. This will include all sources of income for all contributing members of the household.

2. Finding out what your expenses are.

This brings up other pressing questions:

• What are your monthly expenses?
• Where does the money in fact go every month?

Most people are surprised to learn that it may go for things that you do not need at all. Writing your expenditures down provides you with the unique opportunity to visualize and find out if any money goes for things that you do not need or want.

Here is a short list of expenses that many people have. Put a check mark next to ones you have, then write down any expenses you have, that are not on the list.

• Necessities like food
• Clothes laundry dry-cleaning
• Car and transportation expenses: gas, oil, parking, license, plates, car repair, train fare or bus fare
• Rent, mortgage payments, heat, electricity, phone, water, property taxes, house repair, appliance and repair, furniture, small items for home, cleaning supplies on the yard care,
• Medical and dental expenses: doctor, dentist, drugs, hospital or clinic.
• Savings: short to medium term for something soon, a future purchase, emergencies, investments.
• Installment payments: car, furniture, appliances, charge accounts, credit card accounts, loans.
• Pocket money, personal allowances, tobacco, beer, wine and hair care.
• Entertainment, movies and eating out Recreation, sports and equipment, club membership, newspaper, magazines, cable TV, records and tapes, DVDs videos and other multimedia, vacation, letters and postage.
• School bills, books, room and board at school, workshops, special training courses, lessons, music and more.
• Donations: church or synagogue, charitable giving, charities, other and gifts
• Insurance: (if not deducted from your pay check): life, health, house, car and property
• Taxes: (if not deducted from your pay check): Federal, state and local income, social security

Which other ones could you list?

3. Finding out how much you actually spend on each expense.

This is the hard part, where some thought and effort will have to go into the process to ensure the most accurate information is recorded. This will give a realistic and real-time estimate that is reliable and accurate.

In this section, you need to ask yourself how much each item on your list actually costs how much each item costs you a month.

The following estimates and guidelines could prove helpful to you as you set up your family budget:

• Monthly bills that stay the same – car and rental payments
     
• Monthly bills that change – utilities, phones and more. Find costs per month for say six months, add them up. Take this number you have calculated and divide it by six (the amount of months) to get your average cost. This is the number you will be using for your budgetary exercise.
     
• Bills that come every three or six months – the number for every month will be used in your budgetary process.
     
• Bills that come annually, meaning once a year – divide the amount by 12 months. The answer is your monthly budget number.
      
• Bills that come more than once a month – food, gas, lunch and family fun. This is a category to watch very closely, as it is a contributor to this “bottomless pit”, we sometimes feel and see our cash disappear into.
    
• Unexpected expenditures or surprise bills – what you can afford to set aside as a buffer or emergency, contingency fund - (look at the last three years or so and see what kind of unexpected expenses you and your family faced). Use an estimate that makes sense to you and divide the annual number by twelve months to get your monthly number.

4. Finding out if monthly expenses match monthly take-home pay.

Compare your total expenses with your take-home pay. A couple of results and scenarios could be staring you in the face:

Positive result: Income more than expense – you can either spend or save!

Negative result: Expense more than income – spending more than you have, you might have to cut costs and try to save some money to cover the bases!

Whichever of these outcomes you are faced with, knowing is better than not knowing. For some this might bring little comfort and relief, but people in general, find this exercise useful to make an unknown more measurable. It makes us both accountable and wanting to act, faster and that sense of urgency and momentum is just what the family budget process needs!

5. Finding ways to balance your budget.

Earlier it was stated that a good budget would mean income would be equal to expenses. Having a small surplus is no guarantee by any means. You might need this to cover and unexpected rise in oil and gas prices or a larger grocery bill due to a party you are hosting at home.

This almost brings the concept home of a sliding scale, flexibility and discretionary buffer categories in budgets to absorb this give-and-take roller-coaster ride that is family budgeting.

The good news is whether you are in the red so to speak or just scraping by, managing to save nothing or maybe a little, or even a lot, this process will highlight areas where your attention is needed right away. It gives direction and purpose and assists families to formulate their spending plans, goals, re-visit their needs, dreams and goals.

Balancing the budget is no easy task. Here are a few steps that I can suggest to make your life a little easier:

• Find out how much you need to cut from your expenses
• Decide you can make cuts in your expenses and be detailed
• Re-balance your income and expenses after you've made these cuts

A word to the wise: Do not make cuts in your budget that you cannot live with in real life. It is extremely important to remain realistic and keep your real-time expenses and living realities in the forefront of your mind when you make these decisions.

If you’re getting out of a situation where you are in debt and short of cash, you have to try to curb spending any way you can. Cutting those expenses are crucial, not only because you are over budget.

I mean that there might be other reasons, like adding a budget-line to your overall planning for your family vacation. Realistically, you cannot add and address new needs and goals before you have fulfilled your duty and responsibilities.

Cutting a little here and there will mostly do the trick – cancel that newspaper subscription for the papers that just land in the recycle box or garbage anyway. Do you need all the specialty channels and packages on your Cable TV options? Can you live with giving some up?

There is always the specter of rising prices and interest rates, inflation and more to cope with as well, so building preparedness for that into your budget is also a priority. Whatever you can do to cut your costs and expenditure will benefit your pocketbooks and family budgets immensely!

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