How to Make Monthly Budget for your Family
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 an unnerving task with all the financial numbers piling up onto one giant paper.
But it is not that hard once you get a hang of it!
In this post, you’ll get to learn the simplest way to make a monthly budget for your family and achieve the financial freedom you deserve.
So, let’s get started!
What is a family budget?
“A budget is telling your money where to go instead of wondering where it went.” John Maxwell
So, a family budget isn’t just about writing down all your income and expenses. But it’s a PLAN that explains how to actually spend your money.
It helps in making sure that you will have enough money to cover your expenses and savings to achieve your financial goals.
And if not, it provides you an opportunity to review your spending and prioritize only the expenses that are important to you.
You must also read about what is the purpose of budget?
Types of Budgeting:
Once you start a family budget, you need to choose a budgeting approach that works well for you and your family.
There is no one-fit-for-all approach that you can use when it comes to budgeting.
Every family has different financial circumstances and you should use whatever approach suits your family needs the best.
This is the most popular budgeting method that people use.
In a zero-based budget, every single dollar of your income is allocated.
So, if you earn $6,000 per month, you will plan and determine how will you spend every dollar of your earned $6,000.
Here, allocating every dollar doesn’t mean spending on expenses only but also refers to the money allocated towards savings and investments as well.
So, the point is after subtracting all your allocations (expenses and savings) from your income, the balance should be zero.
This technique can be time-consuming in the beginning but highly beneficial and make it easier to stick to your budget.
Since you already have a plan for every dollar you earn, there are lesser chances that you will spend more on one category and deviate from your plan.
The 50/30/20 method:
This budgeting approach provides you a universal percentage to allocate your income.
It says you should put 50% of your income towards needs, 30% towards wants, and 20% into your savings.
For instance, if you are earning $6,000 per month, you will allocate in the following manner:
These ratios provide you guidance, but They may vary month to month.
Sometimes you might end up saving more or sometimes you might save less due to some emergency expenses and so on.
If you are a person who splurges on a whim can’t rely on debit or credit cards, then you need to get into the more physical way of budgeting.
Put cash for all your monthly expenses into envelopes and label them. This way you know you are supposed to spend a particular amount of cash on a certain expense and can’t go above that.
This way can get tedious in the long run by having to create multiple envelopes for each expense and manage cash in them.
But if you’re looking to solve your over-spending problem, go for this method and then slowly switch move back to digital payments.
How to make a monthly budget for your family
Now, once you have chosen your budgeting method or approach and the budgeting system, let’s dive in and see how to actually prepare a monthly budget:
Step 1: Set your financial goals
You must set financial goals before you start planning a budget. It will help in determining “WHAT” you want to achieve through the budgeting process.
Your goals can be as simple as:
- Setting apart a 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
Your monthly budget must align with your goals. You need to treat your goals as an expense and set aside a certain amount each to achieve your financial goals.
You don’t have to work on all the goals together but prioritize them based on importance and take up two or three goals at a time.
Also, it’s significant that you and your spouse are on the same page while setting financial goals for your family. This will ensure the success of the budgeting process.
You should also checkout this post on 9 Clever ways on how to save $10000 in a year
Step 2: Write down your monthly income
Start with writing all your income (after-taxes) line by line.
You must list all your sources of income like salary, freelance, rental, interest income, etc.
It’s a bit easier for a salaried person as you just need to list your net paycheck amount for each month.
But, in case you have an inconsistent income, 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 your income each month.
Adjustments to your budgets based on actual income can be dealt with later.
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 may mess up your budget later.
Step 4: Make a note of seasonal and irregular expenses
Everyone has expenses that pop up occasionally, 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 equally important as fixed expenses so that they are no surprises.
Having them as an expense on your budget will help you put away a small amount every month so that you don’t face any financial crunch at the time of actual expense.
This is where the sinking fund comes in. A sinking fund is a fund that you set up to save money for all your known future expenses and put in a separate savings account.
Let’s see how you can plan and make a room on your budget for these expenses:
- Firstly, since you do not have the actual amounts, you need to estimate them based on the last years’ spending on these expenses.
This will help you come up with the closest estimate.
- Second, you divide the estimated amount by the number of months until the expense will be due.
This will give you a monthly amount that will be accounted for as an expense on your monthly budget and to is set aside for future know expense.
For instance, if your property tax is $6,000 and due in July 2021. You can start putting away $1,000 per month ($6,000/6) starting January 2021 to avoid any financial burden when taxis due in July.
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 and so on.
So basically, these are the things you want to splurge on, but you can totally do without them if you don’t have extra money.
Step 6: Do the math!
Time to pull up your calculators. In this step, you will make sure that you have enough 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.
You can also consider cheaper alternatives on the things like internet, gym, generic medicines, etc. to save more money.
Also, don’t forget to 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
REVIEW, ADJUST and REPEAT….. This is the mantra for successful budgeting.
The goal of the whole budgeting process is to make sure that you can cover all your expenses and savings to meet financial goals in the income you’re earning.
Review your bank statements every week to make sure you are right on track with your monthly budgeted expenses.
If not, adjust your budget right away to save yourself from being miserable at the end of the month.
Also, there can be certain life changes like losing a job, moving to a new house and so on that will impact your finances. You must update your budget to reflect those changes from time to time.
What are the best family budget apps?
Here are the few best apps that you can use to create a budget for your family:
Mint is one of the most popular and widely used free budgeting app.
Using Mint is convenient because it let you link your bank account to the app and pull the data automatically.
It’s an easy-to-use app and lets you pull various customizable reports to understand your financial data.
If you’re looking for a tool with which h you can analyze your investments better, then Personal Capital is the right app for you.
It lets you monitor your 401(k), Roth IRA and other investments along with managing your budget.
It’s a free app for budgeting fees but there is a fee if you use it to invest your money as well.
You Need A Budget (YNAB)
YNAB is the best app for creating a zero-based budget. It lets you assign every dollar you earn for expenses, saving and investments.
It’s a great tool to avoid any overspending since there is a plan for every dollar you have. The only downside is that it’s not a free app, but it comes with such great functionalities which makes it worth the price.
Some people don’t use apps and like to create their budget conventional way using pen and paper. This helps in keeping them more accountable making it easier to stick to the budget. If you’re not sure how to get started, you can use these FREE monthly budget printables that will guide you through the budget-making process.
Final thoughts on how to make a monthly budget for your family
The whole process might seem overwhelming to begin with, but once you start with it, you will get the hang of it within a couple of months.
You will gradually enjoy the fact that your finances are under control and you don’t have to worry about living paycheck to paycheck anymore.
Also, don’t be very harsh on yourself. Give yourself a comfortable allowance to spend on the things that give you happiness without going overboard.