Creating a Family Budget
Having a budget shows where your money comes from and where it goes.
No matter what your financial goals are– saving for a house, buyng a car, paying for a child's education, retiring early – a budget will help you reach them.
Setting up a budget will show where your money comes from, where it goes and what changes are needed to reach your goals.
Putting together a budget can be as simple as using a pen and paper, or it might involve an electronic program such as Microsoft Excel, Quicken® or Mint. Find what works for you and stay with it.
4 Steps for Creating Your Budget
Think of a budget as a roadmap – it shows you where you are, where you want to go and what it's going to take to get there. Here are four steps to creating a family budget.
1. Set goals. Setting goals for your long-term financial objectives is the most important part of your budget. Goals could be lowering your debt, saving for early retirement or purchasing a new car.
2. List all sources of income. This includes paychecks, interest, rent from a tenant, alimony, etc. For budgeting purposes, only consider fixed income; don’t consider variable or non-guaranteed amounts like commissions or bonuses.
3. List expenses. Include all expenses such as rent or mortgage payments, loan payments, minimum credit card payments, groceries, utilities, etc. If possible, build in a monthly saving amount for planned events like holiday gift giving or travel.
4. Track day-to-day spending. Write down everything else you spend money on for a month, including coffee, gas, lunch, entertainment, etc. You’ll be surprised how quickly things add up. By identifying where your money goes, you’ll see where you can make budget adjustments.
Now do the math. Subtract your expenses from your income to see how you're doing. If you're spending more than you bring in, you need to find areas to cut back. (Do you really need that triple café mocha every morning or can you bring coffee from home?)
If you have extra money at the end of the month, now may be the time to pay down debt or build your savings faster. Keep in mind that there will always be events that can throw things off such as an unexpected auto repair. With careful planning and saving, you should be able to handle these surprises without throwing your budget completely off.
Keys to a Healthy Budget
- Pay yourself first! A rule of thumb is to save 10 percent of your income.
- Financial planners say you should have enough cash on hand to cover six months of expenses. Recent financial turmoil has prompted many planners to increase that to 12 months.
- If you run low on cash every week without an obvious reason, a monthly spending log will help identify where the cash is going.
- Don't let credit card balances get out of hand. The higher they get, the more interest you pay. Make a point of paying off your credit cards every month.
- If your income climbs from raises or promotions, don't spend more just because you have it. Make sure you stay ahead of inflation. It's better to use income increases as a way to save more and pay down debt faster.
With a little careful planning and a commitment from everyone in your family, you can create a budget that allows you to meet your financial goals and stay current on expenses.