Setting up a family budget is one of the most important steps you can take to control your finances. It doesn’t matter how much money you have – in order to make the best use of your income, you need a family budget. A family budget will not only tell you where your money is going, but it will help keep you on track and spend your money wisely.
Where Has All of Your Money Gone?
Do you ever get to the end of the month and wonder what has happened to all of your money? At the beginning of the month, it always seems as though we have enough to pay the bills and cover the miscellaneous things we want to buy. But then when the end of the month comes, the fast food, Starbucks, and frivolous spending can often use up a chunk of our money.
The first step to putting together your budget is to know where you are currently spending your money. And I’ll forewarn you – this can be a rude awakening! Seeing it down on paper is like getting thunked on the head – it gets your attention, and it sometimes hurts. Looking at your past spending on paper is a reality – you can no longer put your head in the sand and ignore it. To set up your spending log:
- List all spending using your most recent bank statement. Begin with looking at just last month. For each item that shows up on your bank statement, assign it a category. Categories could include rent/mortgage, food, utilities, insurance, automobile, children, entertainment, pets, personal care, loans/credit cards, and savings.
- If you use credit cards, list any charges to your card that you’ve made and assign each a category.
- Total up the categories. Study your spending log. What jumps out at you? Do you see categories where you are overspending?
- Highlight the fixed items and necessities. These are the priority items that absolutely must be in your budget. They might include your mortgage payment, a loan payment, food, utilities and insurance.
Begin Your Family Budget
If you like to keep things on your computer, you can download free budget templates from Microsoft Office. They have a great selection of templates that you can use in Word or Excel. There are also online programs like Mvelopes which, for a monthly fee, help you to set up a budget and manage your finances. Or if you prefer to write things out, set up your budget on paper. Use whatever method works best for you – the important thing is that you do it.
- Set up your categories. You should already have the main categories set up from your spending log, and now you need to divide the categories into sections. For example, the main category of utilities can be divided up into electric, telephone, cell phones, cable, etc.
- List your net household income. This is the income you have left after you’ve paid taxes – it is the money you have to spend every month.
- Assign a dollar amount to each highlighted item from your spending log. These are the things that are non-negotiable; they must be paid every month. If you highlighted food (and you should have), start with the amount you spent last month, assuming last month was a normal month. Of course if the kids were away at camp for one week and you were on vacation for another week, you don’t want to use that month. Use a typical month to get a starting dollar amount for food. Unlike your mortgage, your grocery bill is one you have control over. So keep in mind that this amount can be adjusted if needed.
- Now that you’ve added the “must pay” items for a month, total them up and see how much money you have left.
- With the remaining money, divvy it up to the other categories. There is nothing wrong with having a category for eating out or entertainment if you have the money for it. This step helps you to prioritize your spending and decide which things you really want, and which things you can live without. I recommend giving yourself a spending allowance each month that you can use however you wish. Consider it your mad money. Even if your allowance can only be $5.00 a month, when you spend that money you’ll spend it wisely and you will enjoy it.
The Hard Part is Done, but There’s One More Step
Now that you have allocated your monthly income into spending categories, you need to keep an eye on your spending. It won’t do you any good to go through the process of setting up a budget if you aren’t going to stick to it. Set up a time once a week to record your actual spending into your budget, and adjust your spending budget as you go.
For example, if your electric bill was $50.00 more than you budgeted, then you must adjust the spending allowance in another category to cover that extra $50.00. You might choose to reduce your entertainment budget by $50.00, or plan frugal meals and reduce your grocery budget by $50.00. The money must come from somewhere because in your budget, all of your income has been allocated.
By setting up your family budget, you can free yourself from unnecessary spending. You can even take your finances a step further and set up financial goals. Now that you know exactly how much money you have and how much you are spending, you can better plan for your future and your children’s future.