Creating a family budget can be one of the best financial decisions that you can make. A budget is a financial tool that helps you spend money on things that are important to you, pay your debts, and still have money left for the things you love (whether that’s travel or a home renovation) and longer-term goals, like retirement.
While setting up a budget on your own can be challenging enough, adding additional people can make things more complicated, accounting for diverse spending habits and financial goals. That’s where a family budget can be so important, as it includes and guides all members of your household.
Key Points
• Creating a family budget involves setting financial goals that align with all household members’ priorities, such as saving for a house or paying off debt.
• Breaking down income and expenses into fixed and variable categories helps understand spending patterns and make necessary adjustments.
• Automating savings and using budgeting apps can help effectively manage finances and avoid impulse purchases.
• Regular family meetings can keep everyone informed and engaged, allowing for budget adjustments as circumstances change.
• Open communication is crucial for handling different spending habits and ensuring commitment to the family’s financial goals.
Understanding the Importance of a Family Budget
Estimates of how many American households have a budget range from 32% to 82%, according to a Rutgers University review. Whichever figure may be closer to reality, making a budget is usually important for any individual managing their money. In addition, it can become even more vital when you start including more people. Not only can it get more challenging when you have additional expenses and categories, you may also have different people with different spending priorities.
Typically, after you create a budget for yourself, you may want to figure out budgeting as a couple. While this is normally done after two people get married or start living together, it can also be done for couples in any relationship. If your family includes kids or other extended family, you may want to include them in creating the family budget. It can help you account for their spending and their future needs.
How old is old enough for a child to participate? That’s an “it depends” situation, varying with the parents’ attitudes and preferences and the child’s maturity and interest level. Some experts say children as young as age seven to nine can grasp and benefit from exposure to basic money concepts, while others say waiting until teenagehood is wiser.
Assessing Your Current Financial Situation
One of the first steps in budgeting is typically to assess your current financial situation and figure out where you stand and where you’re heading.
That often means gathering information on your income and expenses (more on that below), your assets (how much is in your checking and savings accounts, any home equity, and investments, for instance) and debts (such as college loans). What can give the process focus rather than just accounting for the status quo is to set some family financial goals and then breaking down your current income and expenses.
Setting Family Financial Goals
While you might want to immediately start by breaking down your income and expenses, it may be smarter to take a step back before you do that. As noted above, one of the most important parts of a budget is deciding why you are creating this budget. After all, a budget is just a tool, and without everyone being on the same page for the whys of budgeting, it may be difficult to stick to your budget in the long term.
This becomes even more crucial when you are creating a family budget with multiple people taking part, especially if there are multiple adults in your family or household. Adults often come into a household with their own financial history and baggage, and it’s good to first set up family budgeting goals to make sure everyone is on the same page. Even older children can take part in the goal-setting process. Including kids in the process can help them learn and understand the tradeoffs that come with sticking to a family budget.
Of course, these goals will vary from household to household.
This becomes even more crucial when you are creating a family budget with multiple people taking part, especially if there are multiple adults in your family or household. Adults often come into a household with their own financial history and baggage, and it’s good to first set up family budgeting goals to make sure everyone is on the same page. Even older children can take part in the goal-setting process. Including kids in the process can help them learn and understand the tradeoffs that come with sticking to a family budget.
Some sample goals could be:
• Accruing enough money for a down payment on a house
• Having enough money in a travel fund to take a special summer vacation
• Paying off student loans early
• Eliminating credit card debt
• Saving for retirement
• Contributing to the amount of your emergency fund
• Creating a college fund for kids’ educational expenses
Of course, these goals will vary from household to household.
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Breaking Down Income and Expenses
Once you have set your family financial goals, the next step is to take a look at your income and expenses. Nearly all the different budgeting methods include breaking down your income and expenses as one of the first steps in creating your budget. Once you know how much you earn and spend each month, you can start setting up your budget.
If your income is higher than your expenses, you can make a plan to save your surplus each month. If your income falls short, it may be time to cut back your spending or eliminate spending in certain categories. Your family financial goals can guide you as you look to adjust your budget to make sure you are living within your means.
Fixed vs. Variable Expenses
As you break down your expenses, you will likely run into the fact that your monthly expenses can be fixed vs. variable.
• Fixed expenses are expenses that are the same amount each month. Fixed expenses could include your rent or mortgage, car payments or some utility bills.
• Other utility bills may be variable expenses, which are those expenditures that shift with your spending. For instance, your heating costs could go up significantly in winter if you live in a cold climate. Groceries, clothing, entertainment, and dining out can be variable expenses in your budget.
Others may prefer to think of their expenses as “needs” (housing, food, health care) vs. “wants” (dining out, travel, fun purchases).
Whatever the case, as you review past spending patterns, you can come up with appropriate numbers for your monthly family budget and make cuts where you like. You might also try gamifying the process of making cuts. For instance, for one month, you might decide the family won’t get any fancy coffees or bubble teas on the go. During the next month, you’ll only stream free movies and shows. This can make the process manageable, fun, and productive, as you end up with more money in your checking account.
As you work on your family budget, you might explore and experiment with different popular budgeting techniques, such as the envelope system, zero-sum budgeting, and the 50/30/20 budgeting rule. There are even, say, 50/30/20 budget calculators to help you work through the numbers.
Strategies for Cutting Costs and Saving Money
To delve more deeply into cost cutting, here are a few more strategies for saving money:
• Cancel any unused or unnecessary subscriptions
• Cook and eat at home rather than eating out
• Reduce your electricity and water use
• Prep for grocery shopping (by using a list) rather than being impulsive at the grocery store
• Make homemade gifts or give the gift of time rather than buying gifts for friends and family
• Put gym memberships on hold and find free fitness activities, such as trail walking or workouts available online for no fee
• Walk or use public transportation vs. hopping into rideshares
Consulting a budgeting guide can offer more strategies that may work for your family.
Implementing and Sticking to Your Family Budget
The concepts of a budget are not difficult to understand — simply spend less than you earn. However, in practice, one of the most challenging parts of budgeting is sticking to a budget. There are a few things that you can do to help increase the chances that you’ll stick to your budget.
• Setting bigger-picture financial goals can help you stay on track. Some people enjoy creating a moodboard of their financial dreams, such as photos of the kind of home they hope to buy one day or the vacation destination they plan to visit.
• Automating your budgeting can be a wise move. You’ve probably heard that “pay yourself first” saying, which simply means siphoning funds from your checking account into savings before you get a chance to spend it on an “in the moment” impulse purchase. You might set up automatic online banking transfers to pull funds right around payday from your checking into savings.
• Use technology to help you stay on budget. This might involve utilizing financial trackers, alerts, and budgeting apps to keep you steady in your spending and alert you when your bank balance is getting low. See what your financial institution offers, or check online for third-party tools. Don’t forget to involve other household members.
• Having regular household money meetings. By doing so, you can keep everyone involved, aware, and motivated. It can be a great way to help kids gain money skills, and it provides an opportunity to tweak your family budgeting plan. You might set up monthly meetings and make them fun by serving a special snack.
Revisiting a budget regularly and updating it to meet new needs and circumstances (a raise at work or a major car repair bill) can be a critical step in staying on target.
The Takeaway
Creating and sticking to a budget is one of the most important things that you can do to improve your overall finances. One of the best strategies for creating a family budget is to start by making sure that everyone is on the same page with longer-term family financial goals. Once everyone has agreed on the bigger picture, then you can move towards traditional budgeting moves, like tracking and tweaking your monthly income and expenses. Regular and open communication can also be important when you are budgeting with a family or any group of people.
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FAQ
How can we budget for unexpected expenses?
One of the best ways that you can budget for the unexpected is to make sure that you have a sufficient emergency fund. The exact size of your emergency fund will depend on your family and your specific situation. Many experts recommend having at least three to six months’ of living expenses in an emergency fund.
What budgeting tools or apps are best for families?
There isn’t a single budgeting tool or budgeting app that will be right for everyone. Instead, each individual or family will have to work to find the best tool for them. Most tools share many of the same features, but may present the information in a different display or format. You might start by seeing what your financial institution offers and, if that’s not a winner, move onto well-reviewed third-party tools available online.
How do we handle different spending habits within the family?
The best way to handle different spending habits within a family is through open communication. It is almost inevitable that different people in the same family will have different ideas about money and different spending habits. When that happens, one suggestion might be to get everyone together regularly to talk about the family goals and how spending in different categories does or doesn’t support the overall family goals.
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