With all the demands of running a household, it's hard to find time to make a family budget—especially if the amount of money left at the end of the month is less than you want. It's important to look household finances squarely in the eye, because that's the only way to control them; otherwise, they control you.
Learning how to establish a household budget takes time, so grab some coffee and set aside at least a few hours. It's better to wait for a day when you don't have pressing obligations than to cobble together a monthly budget plan that doesn't work.
Don’t let money management stress you out. Start with a financial goal. Maybe it's paying off debt, or perhaps it's a college fund. You don't have to justify your financial goals to anyone, but envisioning it can help keep you on track.
If you’re feeling like the weight of the world is on your shoulders, take a deep breath. We’re here to teach you exactly how to make a family budget step-by-step – so you can stress less, save more, and sleep better!
Step #1) Choose Your Budgeting Tools: Paper or Electronic?
If you’re scratching your head and asking yourself, “How do I start a family budget?”, simply begin with the basics —whatever budgeting tool you’ll use to keep track of the family finances.
Using a budget worksheet with pen and paper can be just as accurate as electronic budgeting tools, but financial software certainly makes the job a lot easier. It also reduces errors.
If paper feels right, an accounting ledger doesn't cost much and is designed for credits and debits within your bank statements. In everyday language, credits are incoming dollars and debits are outgoing. You'll also need a budget calculator.
Make it easier on yourself to establish a household budget with a simplified budget tracker from Mint.com. Instead of manually writing down and accounting for each transaction on a regular basis, intuitive software creates running totals, tracks fixed expenses, highlights discretionary spending, makes suggestions, and shows how debits and credits influence each other for your bottom line.
Step #2) Bring Your Bank Statements to the Table
Everything that shows incoming and outgoing money—such as earnings statements from sources of income, receipts, student loan interest, bills and credit card statements—has a place at the budget table. First, separate them into two categories for incoming and outgoing, suggests U.S. News and World Report.
You'll need a total for both categories in your family budget. This is where many budgeters get a bit nervous, but don't be. The incoming amount might be smaller than the outgoing, but an easy family budget will help you control that.
Step #3) Locate Fixed and Variable Expenses
The outgoing category needs more attention after you've got a grand total. The next step is breaking debits into subcategories. Your family budget might include Utilities (electric, water, etc.), Secured Debts (mortgage), Unsecured Debts (credit cards), and Discretionary Spending (lunch, clothing, etc.).
One of the best budgeting tips we can offer: discretionary spending adds up fast. A few dollars here for movie tickets and a few more there for dining out sometimes total more than a fixed bill that you pay every month. This is the subcategory where you can create the most change.
Step #4) Set Up the Ledger, Spreadsheet or Budget Software
Now that you’ve mastered the art form and know how to plan a budget for your family, take your initial totals and categories prepared, then add everything to an electronic spreadsheet, budget software or ledger. This is where the budget begins to take shape. The short term goal is to get your debits (expenses) less than your credits (income).
Step #5) Control Discretionary Spending
With the numbers in black and white, you can approach the monthly budget more realistically. Discretionary spending might be the only category where you can find and divert money toward paying off debt and building up savings.
A tried and true way to manage discretionary spending is the envelope method. The money you allocate for everyday expenses goes into an envelope each month—that's right, cash. Today Money explains that with cash in hand, you're more aware and less likely to overspend.
Control is the first step toward peace of mind.
Step #6) Pay Off Debt
Paying off debt is the main goal of many families and might be the reason why you’re researching how to make a household budget. The only way to get there is to submit at least the minimum payment each month. Paying more than the minimum obviously reduces debt faster, but it can also mean you'll pay less interest.
Check with each creditor to be sure extra payments will post the way you want them to. In some cases, interest is a fixed amount that won't change, regardless of whether you pay more each month. It might be worth getting a free credit score in order to shop lenders and contemplate loan consolidation at a lower rate. If your credit is looking a little weak, don’t worry too much. Just stick to your family budget and make it a priority to pay off your debt, you’ll see your credit score start to improve.
Money management is both simple and complex – but once you learn how to make a family budget step-by-step, grabbing control of your finances will become a walk in the park. It's only a matter of knowing what you earn, what you owe, and where money is spent. What makes it complex is deciding where to cut back and where to divert more money. For some families, debt is a real problem. Without enough resources, debt can mount and credit scores can tumble.
But there's hope.
If payments are higher than you can manage and you can't find extra money, a free credit counseling service, such as the National Foundation for Credit Counseling, can help. (Be wary of services that charge a fee and promise to reduce debt.)
A realistic budget can help you meet your financial goals for your family. Sign up for Mint.com to get a full suite of budgeting tools for free.