Creating a family budget involves more than monitoring your online banking activity and allocating where large sums of money go.
Family budgets can help you determine what you are buying the most often and what may be the costliest purchases you make, enabling you to make better financial decisions for you and your family. Understanding your financial status is essential for managing your money more effectively, beginning to save or invest your unused funds and meeting your financial goals faster.
Regardless of your current financial situation, you should make a budget. You and your household will benefit from outlining your financial goals and adjusting your spending habits accordingly. To make a good budget, though, you must first collect all your financial documents and find out what you want to achieve with your new, economic lifestyle. Whether you want to put away enough money to retire early or pay off your mortgage, budgeting is the first step. The following sections explain the family budgeting process in detail.
Learn About Your Financial Life
Before delving into budgeting, you must know a little about your current financial situation. For example, you should know how much money you have available and how much money you are spending daily, weekly or monthly. Helpful documents that may provide you with information about your finances include pay stubs, receipts, credit card statements and banking activity printouts.
When calculating your incoming and outgoing funds, consider rounding up your estimates to ensure that you do not accidentally overspend. While there may not be a best way to record all your financial information, there are electronic and print options you can choose from to store your data securely. Continue reading to learn more about your options.
Learn About Where Your Money Goes
Methods for tracking your money and storing your financial information may be done digitally or by hand. Online methods consist of using money-tracking programs or applications available for free or a nominal fee online. You can even use programs that you may already have access to, such as Microsoft Excel. These give you tools to better track, control and budget your money.
If you tend to pay your bills, access your banking accounts and update your financial details online, then electronic tracking methods may be right for you. However, if you prefer to use traditional methods to track and record your finances, then different tracking methods may be productive for you. For instance, Excel documents, or even Google Docs spreadsheets, can give you the ability to enter your information in manually. You may also find paper-based methods like tracking your income and expenses in a notebook useful.
After selecting an appropriate financial tracking option and calculating your financial status, you should begin dividing your charges into categories based on the type of the purchase. Common categories include:
- Housing, including rental, mortgage, property tax, maintenance, homeowners/renters insurance and utility expenses.
- Clothing, including clothes, shoes and other related expenses.
- Food, including your estimated grocery costs and dining out expenses.
- Reoccurring services, including cable, internet, cellular phone, landline phone, gym membership or other subscription-based services.
- Recreational activities, including expenses related to any hobby or routine outing.
- Medical expenses, including the cost of insurance and out of pocket fees for health care, dental care, vision care and hearing care.
Only make categories for items or services that you regularly spend money on to prevent the creation of too many categories. Many online budgeting programs can do this automatically, but you should still check to make sure all your big expenses are accounted for.
Set Your Financial Goals
Take a look at where your money is being spent and determine if your spending matches your future financial goals and priorities. Because the purpose of a budget is to call attention to the areas in which families may need to adjust their spending/saving habits, many families without a good budget fail to recognize that their spending habits may need to change. However, to understand just how much your spending habits may need to change, you will need to know your long-term and short-term financial goals.
Financial goals should be realistic, include a time-limit or repeated activity and be steps toward achieving your big goals (e.g., owning a house or getting out of debt). Depending on your financial status, you should focus either on eliminating costs and spending or saving more money. You may be able to reduce or eliminate expenses such as:
- Cable, internet and landline phone costs, by shopping around for the best deal, enrolling in a contract or other promotion, reducing your channel selection or speed or applying for Lifeline to reduce landline or internet charges.
- Car insurance, Shop around between providers and inquire about any discounts you may qualify for, such as safe driver, defensive driving or multi-policy discounts. Ensure that you are getting the right level and type of coverage to suit your needs.
- Cellular phone services, Shop around between providers and contact your current provider about ways that you may be able to save. Reduce data, remove a hotspot that you are not using or downgrade your plan.
Regardless of the expenses you may be able to reduce or eliminate, developing a firm budget that you can follow will help you meet your goals as quickly as possible.
How to Create Your Budget Strategy
Finally, it is time to make your financial goals a reality. You know how much money is left after you pay for necessities like rent, transportation, credit cards and insurance, and you know how much you spend on each category. However, the amount of money you are left with each day, week or month determines how much money you really have to work within your budget.
There are various ways you can budget this remaining, discretionary money that can help you and your family find financial success. For example, you may add money to a savings account, an account devoted to leisure activities and then an account for when you gain financial independence.
Another popular way to divide your remaining funds is to use the 50/20/30 rule. The rule states that you should spend 50 percent of your budget on your living expenses (i.e., housing, food and utilities), 20 percent on achieving your financial goals and 30 percent on anything that you may want rather than need. This strategy is used when you do not need to pay off high-interest debt or add to your savings. All of your remaining funds should be used to pay for these types of expenses.
Setting things up in advance is a great way to ensure your chosen budgeting strategy succeeds. For instance, automating online payments so that you will not miss them and consolidating your bills can save you time and stress. You may also change your billing due dates, if possible, can make paying bills easier, especially if you pay by mail.
Making your budgeting strategies simple can increase your chances of completing your long-term and short-term financial goals. Additionally, you can be sure to follow through with each budgeting step. To learn easy tips for saving money every day when your family’s finances need work, click here.