Budgeting is essential to manage finances and ensuring financial stability. This is especially true for families, where expenses can quickly add up and financial planning can become overwhelming. However, creating a family budget can be an effective way to track expenses and manage money. In this post, we will answer some questions and provide tips and tricks to help you create a family budget that works for everyone.
What Is a Family Budget?
A family budget is a financial plan that outlines all the household’s income and expenses. It is a simple plan for your money that can help you achieve your financial goals. The best family budgets involve everyone in the family, at least to some degree, and allow every family member to understand their financial responsibilities.
Why Should You Have a Family Budget?
Creating a family budget has many benefits. Firstly, it helps you understand where your money is going and make informed decisions on how to allocate it. Secondly, it encourages everyone in the family to be on the same page about money, allowing you to work together towards your financial goals. Lastly, it promotes healthy communication about finances, breaking down barriers, and eliminating taboos.
How to Set Up Your Family Budget in 3 Steps:
Step 1: List your income – Start by listing all the income you expect to receive during the month. This includes any regular paychecks, side hustles, or freelance work.
Step 2: List your expenses – After listing your income, list all your monthly expenses. Start with your Four Walls, which include food, utilities, shelter, and transportation. Some of these expenses are fixed, meaning they stay the same every month, while others fluctuate. Make an estimate of your grocery budget, and don’t forget to include other monthly expenses such as insurance, debt, savings, and personal spending. In general, spending can be in different forms such as:
- Fixed expenses: These are expenses that stay the same each month, such as your rent or mortgage payment, car payment, or insurance premium.
Example: Your rent payment is £1,500 per month.
- Variable expenses: These are expenses that can vary from month to month, such as groceries, gas, or entertainment. For example, your grocery bill might be £400 one month, but £500 the next.
- Periodic expenses: These are expenses that come up periodically throughout the year, such as car maintenance or holiday gifts. As an example, you might spend £600 on car repairs one quarter, but only £100 the next.
- Irregular expenses: These are expenses that don’t happen on a regular schedule, such as medical bills or home repairs.
Step 3: Subtract your income from your expenses – When you subtract your income from your expenses, it should equal zero. This is called a zero-based budget, where every penny of your income has a job. If you end up with a negative number, you need to cut expenses until your income minus expenses equals zero.
Tips for Creating a Family Budget That Works (for Everyone)
Select a budgeting method:
It’s important to choose a budgeting method that works for both you and your spouse and meets your specific needs. Some people prefer to use spreadsheets or pencil and paper, while others find budgeting apps to be more convenient. Whatever method you choose, make sure that it’s easy for both spouses to access, simple to create new monthly budgets, and convenient to track spending throughout the month. A good budgeting tool like EveryDollar can make the process much easier and more effective.
Talk about where you are right now:
Having an open and honest conversation with your family about your current financial situation can help set expectations and create a sense of teamwork when creating your budget. Depending on your comfort level and your children’s ages, you may choose to be more or less specific about your income and expenses. However, it’s important to communicate how things are financially in your household and any goals you have for the future.
Create a budget that includes everyone:
Involve all members of your family in the budgeting process to help ensure that everyone is on the same page and invested in the plan. Even younger children can be given small responsibilities, such as helping to plan meals or tracking their own spending. By working together, you can create a budget that is realistic, fair, and effective for everyone.
Track your spending:
Once you have created your budget, it’s important to track your spending throughout the month to make sure you’re sticking to your plan. You can use your chosen budgeting tool to keep tabs on your spending, or keep receipts and manually enter your expenses into a spreadsheet. Make sure to involve your family in this process as well so everyone can see how their spending impacts the overall budget. Mobile apps can be incredibly helpful in tracking your spending, as they offer a convenient way to monitor your transactions in real-time, anytime, and anywhere. Here are some ways that mobile apps can help you track your spending:
- Automatic categorization: Many budgeting apps automatically categorize your transactions based on the type of expense. For example, they can distinguish between groceries, dining out, transportation, and entertainment. This makes it easy to see where your money is going and identify areas where you can cut back.
- Real-time tracking: With a mobile app, you can see your transactions in real-time, which helps you stay on top of your spending. You can also set up alerts to notify you when you’re close to hitting your budget limits.
- Budget tracking: Mobile apps allow you to set a budget for each category of expense and track your progress in real-time. This helps you stay on top of your spending and adjust your behavior if necessary.
- Bill-tracking: Many budgeting apps also allow you to track your bills and remind you when they’re due. This can help you avoid late fees and stay on top of your financial obligations.
- Goal tracking: Some mobile apps allow you to set financial goals, such as saving for a vacation or paying off debt. These apps can track your progress and help keep you motivated.
Adjust your budget as needed:
Life is unpredictable, and sometimes unexpected expenses or changes in income can throw off your budget. Be prepared to adjust your budget as needed throughout the month or from month to month. If you overspend in one category, you may need to cut back on another. Or, if you receive an unexpected windfall, you may be able to put that money towards a savings goal or pay down debt more quickly. Don’t be afraid to make changes to your budget when necessary to keep it working for your family.
Should You Use Cash or Card to Save Money?
Both cash and cards have their advantages and disadvantages when it comes to controlling your budget and expenses.
Using cash can be beneficial because it provides a physical representation of your money, and you can see exactly how much you have left to spend. It also prevents overspending since you can only spend the amount of cash you have on hand. However, carrying large amounts of cash can be risky, and you may not be able to make certain purchases without a card.
On the other hand, using a card (such as American Express or Tesco Credit Card), whether it’s a debit or credit card, allows for easy tracking of expenses and provides a record of your purchases. It also allows for online purchases and eliminates the need to carry large amounts of cash. However, it can be easy to overspend with a card since you don’t have a physical representation of your money.
Ultimately, the best approach for controlling your budget and expenses will depend on your personal preferences and spending habits. You could consider using a combination of cash and cards, or use a budgeting app to track your expenses regardless of the payment method you use.