One of the best ways to start properly monitoring your money and building your savings is to make a family budget.
But, learning how to create a simple budget is also something that many families struggle with.
Luckily, making a family budget doesn’t have to be complicated, especially at first.
Try this step-by-step process to get started with learning how to create a simple budget your family can follow:
1. Determine Your Income
The first step to any budget is figuring out how much money you have coming in each month.
This includes your salary or wages, after deductions, any freelance income, rental income, and any passive income sources.
Use an Excel document, Google Sheets, or a good old-fashioned piece of paper to list your income sources and add them up to find your total monthly income.
2. List Your Expenses
The second step in creating a simple budget is to list all of your monthly expenses. Print a copy of your bank statement and credit card bill, and jot down every expense you had for the month.
If you want to get especially detailed, you can look back over the last few months to ensure your spending is staying about the same.
But, initially, using the previous month’s bills will give you a good starting point for your family budget.
3. Categorize Your Expenses
With your expenses listed out, you’re ready to start breaking down your spending into different categories.
For a bare-bones budget, simply divided your spending into two categories: essential and non-essential.
Starting with this simple breakdown will give you an idea of how much extra money you have each month for non-essential spending.
When you’re ready to get more detailed, narrow the categories down further.
Common essential categories on a budget generally include:
- Home Expenses: Rent or mortgage, utilities, home insurance, property tax, and maintenance costs.
- Transportation: Car loan payments, car insurance, gasoline, car maintenance, and parking fees.
- Family Essentials: Groceries, personal care items, and essential clothing.
- Health: Health insurance premiums, doctor and dentist bills, and prescription drug costs.
- Savings and Debt Payments: Student loans, personal loans, credit card bills, emergency savings, and retirement funds.
Common non-essential categories could include:
- Personal Spending: Home decor, non-essential clothing, spa visits, gifts, and treats.
- Recreation and Entertainment: Concerts, restaurants, video games, streaming services, and family activities.
- Miscellaneous Expenses: Any extra costs that don’t fit well in any other category.
Depending on your family’s personal situation, you may want to include other categories, like one for pets or one for education, for example.
4. Set Spending Limits
With a clear idea of exactly what you spend each month and whether or not it’s essential, it’s time to set some limits.
Decide what amount you want to spend each month in your non-essential categories. For example, you might decide to spend no more than $150 per month on recreation and entertainment.
You may also want to look into ways to minimize your essential payments. Consolidating debts into a single monthly payment with a lower interest rate, for example, can yield some big savings.
5. Track Your Spending
With the hard work done, all that’s left is to track the amount you’re spending throughout the month, to make sure you’re staying within your budget.
Like your initial budget, you can do this with a digital spreadsheet or with a pen and a notebook.
Or, for an even easier option, consider downloading a budgeting app that will let you easily track your purchases on the go.
There are a variety of free budgeting apps that will let you input your income and expenses throughout the month, and let you see at a glance how much you have left in various categories.
6. Adjust Your Budget As Necessary
If you find that you are consistently overspending in one category, you may need to adjust your budget.
Start by looking for ways to cut back on your non-essential expenses. Consider options like exercising at home instead of paying for a gym membership, or using a single streaming service instead of multiple ones.
There may also be ways to save on your essential expenses. Look for sales and discounts when shopping for groceries, and start implementing simple rules like turning off lights or lowering the temperature slightly to minimize utility bills.
Finally, you may also want to try to find ways to increase your income. Look into flexible part time jobs either in your area, or online on sites like Fiverr.
Tips For Making Your Family Budget
Looking to get a little more in-depth with your budget? Here are some things to keep in mind:
- Ideally, your housing expenses should be approximately 30% of your total income. If you’re planning a move or a house purchase, keep this percentage in mind.
- Try to set 20% of your income aside for debts and family savings. Make it a priority to pay off any high-interest debts first to minimize interest charges.
- Set clear goals for your budget. Having a milestone to work towards can help motivate you to stick to your plan.
Ultimately, the key is to strike a balance between saving for the future and enjoying your life today.
It’s important to have an emergency fund and save for long-term goals such as retirement, but you also want to make sure you have enough money to enjoy the present.
Luckily, once you’ve learned how to create a simple budget to help you manage your spending, you’ll find saving easier than you ever imagined.