A family budget is an important tool that helps you organize your income and expenses. It may sound daunting, but if you follow a plan, it can go smoother than you think. A well-made budget can be liberating because it represents the ability to achieve your goals, afford your wants, and not have to question every spending decision.
If your family doesn't yet have a streamlined budgeting system, we can help. iCASH put together a guide to explain why you need a family budget, how to prepare it, and how to maintain it effectively. We'll help you achieve your financial goals in no time!
Why Is It important to Have a Family Budget?
Families need to have budgets; household spending can be variable and daunting. Emergencies do not have a schedule and can pop up at any time to wreak havoc on your financial situation.
In creating a household budget, your family learns how to better live within your means and prepare for the future, boost your existing emergency funds, achieve your aspirational goals, and create an understanding environment around the use of money.
If you need an online loan for a special project, having a family budget is essential to have so you can factor in these random costs.
Steps to Create a Family Budget
Creating your first family budget should be an understanding and collaborative experience for all involved. And just because the subject can be boring, doesn't mean your families budget meeting has to be!
Here are the steps we recommend for success:
Step #1: Schedule a Budget Meeting
First, make sure to set aside a time when everyone can meet to talk about budgets. It'll feel like less of a chore if one person isn't trying to make budgets happen the same evening that the newest episode of your favorite show airs.
With a marked time on the calendar, you can properly plan to have snacks available and schedule some post-budgeting rewards (like that new episode).
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Step #2: Review Spending History
Once you sit down to plan your budget, the first thing you'll have to do is review your past spending habits.
Collect relevant data, including but not limited to the following:
- Income estimates
- Bank statements
- Installment loan statements
- Credit card statements
- Past bills
- Receipts from discretionary spending, medical emergencies, and anything in between
- Costs of future goals
Reasonable budgets are based on real data. If you have a side hustle or other variable income form, don't include that in your consistent income total. However, an estimate of monthly income history from your bank account for the last year is probably a useful number to include.
Step #3: Make a Goal
Once you have an accurate summary of your monthly income and expenses, think about what you'll want to have money wise for a few months from now.
Maybe you want to finish paying off your student loan debt, or you've meant to start a college fund for the kids, or perhaps you want to save money to enroll in an online course.
Whatever your aspirations, you can't achieve them without proper planning, so be sure to include long-term goals in your budget as well.
Step #4: Create a Budget
Once you've collected all possible spending and earning totals for the next month, it's time to organize those numbers. Start by picking a budgeting tool you're comfortable with. This can be an old-school pencil-and-paper, a family budget template, or a budgeting app.
Input all of your amounts so that income and expenses cover two separate pools. Within those pools, make sure that steady income covers most of your fixed costs (rent, health insurance) and varying needs (food, water, electricity).
Anything leftover can pay off debt, such as instant loans or car loans, boost savings, and finally: towards discretionary (or fun) spending.
Step #5: Give Every Dollar a Job
Once you've organized the content of your budget into broad categories and line items, subtract your monthly expenses from your income totals. If this adds up to zero, you're good to go!
If not, don't fret; budgets are adjustable. A negative number means that expenses outweigh income, and any overspending may need to be redistributed or cut out entirely.
A positive amount means that you have extra money left over to go back into your savings, help you pay off debts faster, or even increase your discretionary amounts.
The most important thing is that every dollar has a job. By budgeting your whole month, you are less likely to go over those set amounts of money because you know that doing so will cut into your long-term savings, goals, or debt management.
Step #6: Adjust as Needed
Of course, a budget is not set in stone. Especially while you're first getting the hang of it, you will find that sometimes things are more expensive than you expect. However, that doesn't mean that you give up and cut back on things you need.
Instead, go back to your budget, and look at where else your money needs to go. Maybe that new, eco-friendly washing machine uses less water, and you've been over-budgeting the water bill. Or perhaps you need to get a payday loan to pay for unexpected bills.
Readjust for new expenses as needed, and make room for those changes in the next month's estimates.
Tips to Consider When Creating a Family Budget
An invaluable tip to take into account when creating a budget is planning and adapting. Plan for what you know, adapt to what you don't. If you have no idea where to start, the 50/30/20 budget rule is a great place to get ideas.
Whatever your family's financial situation, having a comprehensive budget is important. It allows you the freedom to spend how you want to, without worrying about running out of money for the necessities. However, sometimes the unforeseen happens, such as:
● Unexpected home repairs
● Car breakdowns
● Emergency medical bills
Aside from having an emergency fund for some of the unexpected financial issues mentioned above, if you stay on track with your family budget you can slowly started creating other savings funds. Maybe you've been eyeing that new fridge and yours is about to see its last day.
Whatever it may be, and if the unexpected happens, don't fret; borrow money today to stay on track.