In this post, learn about an easy step by step process about how to make a monthly budget for your family.
Do you find yourself living paycheck to paycheck with very little or no money left by the end of the month?
Do you wonder where did you spend all your money?
Do you find yourself stressing about your financial future?
If you do, then you definitely need a monthly budget for your family…
Budgeting may seem like a daunting task to you, with the numbers, figures and everything piling up into one giant paper.
But it is not that hard!
Today you will get to learn the simplest and easiest way to make a monthly budget for your family to keep your finances in control.
So, let’s first see what is Budgeting?
What is Budgeting?
“A budget is telling your money where to go instead of wondering where it went.” John Maxwell
Budgeting isn’t just about writing down all your income and expenses but consider it as your a PLAN that explains how to actually spend your money.
It determines in advance if you will have enough money to cover all your expenses and save some money to achieve your financial goals.
And if not, it gives you an opportunity to review your spending and prioritize only the expenses that are important to you. This helps in cutting down the wasteful and unnecessary spending.
Types of Budgeting:
Now let’s learn about the different types of budgeting and see what suits you:
The 50/30/20 method:
In this budget, you put your Needs: 50%, Wants: 30%, and Savings: 20%.
The ratio can vary from month to month, sometimes you might end up saving more. Sometimes you might save less due to some emergency expenses and so on.
As long as you stick with these ratios, you can do your budgeting.
Keep it aside or Envelope System:
If you are a person who splurges on a whim, then you need to get into the more physical way of budgeting.
Put all your monthly expenses into envelopes or boxes and label them. So, you know that you have allocated only a particular amount for a certain expense and can’t go above that.
In a zero-based budget, every single dollar is allocated. You create categories and assign an expense to every single dollar until you hit a zero in your earnings.
This technique is time-consuming but highly beneficial.
(P.S: Detailed blog posts on different types of budgeting coming soon…)
Choosing a Monthly Budget System for your Family:
Each system is unique in its own way and you can choose whatever works best at your convenience.
I personally prefer using a pen and notebook. Writing all the numbers by hand helps me connect through the whole process more than doing it digitally.
Feel free to use a spreadsheet or budgeting if that comes in more handy to you.
Now let’s learn how to make a monthly budget for your family!
Step 1: Set Your Financial Goals
Before jumping to budgeting, it is important that you set some financial goals for yourself.
It will determine “WHAT” you want to achieve through this budgeting process.
Your goals can be as simple as:
- Setting apart certain amount every month as a retirement fund
- Paying off your debt
- Saving money for a vacation
- Save money for house down payment
- Setting up an emergency fund with savings up to 3 to 6 months of expenses
After all your goals laid down, prioritize them on the basis of importance.
Based on your priority, treat your goal as an expense and set aside a fixed sum monthly for that financial goal.
Step 2: Write Down Your Monthly Income
Start out with writing all your income (after-taxes) line by line.
It is really important that you list all your sources of income like freelance, rental, interest income, etc.
It’s easy for a salaried person as you just have to list your net paycheck amount for each month.
But, in case your income is inconsistent, you need to do extra math to estimate your monthly income.
You can either take the average of the last three months’ income or the minimum amount that you expect to make as you income each month. Adjustments to your budgets based on actual income can be dealt with later on.
Step 3: Make A List Of Your Fixed Monthly Expenses
Just like you recorded your income, now it’s time to jot down your expenses.
At this step, you need to list your fixed monthly expenses only. These are the expenses that you absolutely pay on a month to month basis. It can be expenses like rent, mortgage payments, groceries, phone bills, car payments and so on.
The best way to do this step is to look at your bills from the last 3 to 6 months to determine your recurring monthly expenses.
Also, for the expenses you are not sure about, take an average of the last few months. This can be expenses like gas, groceries, etc.
Be diligent at this step to make sure you do not miss out on any expense that can make your budget go haywire later.
Step 4: Make A Note Of Seasonal And Irregular Expenses
Everyone has those expenses that pop up once in a while, such as medical bills, taxes, back to school shopping, vehicle insurance, vehicle buying, vacation, school expenses, and so on.
Making room for these expenses in your budget is very important so that they are no surprises. Having them as expenses will help you put away a small amount every month, while in reality, you are actually saving money for them.
How to do it?
First, since you do not have the actual amounts, you need to estimate them based on the last years’ spending on these items. This will help you come up with the closest estimate.
Second, you divide the estimated amount by 12 to come up with a monthly amount that will be accounted for as an expense in your monthly budget.
For instance, if your car insurance premium is $960 in a year, you will account for $960/12 = $80 as a monthly expense in your monthly budget for your family.
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Step 5: Record your Adjustable/Discretionary Expenses
Once you have written all your unavoidable expenses, now is the time for discretionary expenses. These expenses don’t come under the necessities section such as expenses related to dining out, movies, gadgets, clothing, Christmas shopping and so on.
So basically these are the things you want to splurge on but you can totally do WITHOUT them too if you don’t have extra money.
Step 6: Time for some Maths!
Time to pull up your calculators.
This step is about making sure that you have sufficient income to match your expenses.
First, subtract fixed monthly expenses and discretionary expenses from the recorded income.
If your expenses are more than your income, you need to review them and cut back on unnecessary ones. It can be hard at first but switching to a cheaper internet or cable connection, choosing to workout at park/home can help to lower the expenses.
And if your income is more than your expenses, factor in your monthly cost of financial goals and discretionary expenses based on your priority.
Don’t be too rigid here and just focus on saving money for your financial goals. But also, give yourself an allowance to splurge on.
Basically, this step is all about doing calculations and making sure that you factor in all your expenses based on your income and still having some room for savings.
Step 7: Review and Adjust
Do you think you are done with your budget and your month will pass on like a breeze?
Well, not yet!
Now is the time for….
REVIEW, ADJUST and REPEAT…..
This is the mantra for successful budgeting.
The ultimate goal of the whole budgeting process is to make sure your income matches expenses and you have a surplus left to achieve your financial goals.
Review your bank statements on a weekly basis to make sure you are right on track with your monthly budgeted expenses. If not, make an adjustment to your budget right away to save yourself from being miserable at the end of the month.
Also, there can be a possibility that you lost a freelance client, canceled your gym membership or moved houses, etc. Keep updating your other month’s budget with all those changes.
On a final note…
You might be feeling overwhelmed by the whole process at this time, but once you start doing it, you will get the hang of it.
In fact, you will really enjoy the fact that there will be fewer surprise expenses to worry about and everything has been already accounted for.
Also, don’t be really harsh on you. Give yourself a comfortable allowance to spend on the things that give you happiness. But, just don’t go overboard and try to maintain a healthy balance.
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