Setting up a family budget is one thing, but getting it to stick in the long-term is another. Building a budget is one of those things that many might compare to having a root canal done, but it doesn’t have to be that bad. You can set up a family budget that is simple, effective and will be around for the long-term.
Make it Simple and Easy
You won’t use a budget if it isn’t easy to follow. You also won’t use it if it takes a lot to make changes. Start with a budgeting tool that you are already familiar with. Many people opt for using an Excel spreadsheet or other software program, but you can also use plain old paper (a notebook or binder paper) and a pencil.
The main thing to do with a budget is to figure out how much money you have and where you want to spend it. There is no need to get bogged down in listing every little thing, setting up hundreds of categories, or making it complicated. Keep it simple, and make it work for you.
Set a Few Simple Goals
Before you even start to set up your family budget, take the time to figure out a few simple goals such as pay your monthly bills, pay down debt, contribute to your retirement fund, and save for new furniture. That is it. Keep your basic goals to five or less.
Once you have these goals, you will basically know how you want to spend your money.
Start with Your Income
Start first by knowing your income. Gather your pay stubs from the last three months, so you’ll have an accurate account of your take home pay per month. Because income can sometimes fluctuate, adding up three months of pay and then dividing by three can average it out. This is your budget. You can’t spend any more than this amount without going into debt. All the money that you spend per month needs to add up to this number.
Collect Your Bills
Next, collect your monthly bills. These are the things that have to be paid. Again, pick at least three months worth of bills, four months if you have any payments that are due quarterly, such as insurance payments. Total everything up and then divide by the number of months you sampled. Some bills will be the same each month, such as rent, while others may fluctuate, such as the electric bill.
If you want to make things even easier, you can take the amount of your highest bill out of the three or four months for each debt and use that number. Since you may come out ahead at the end of the year, you should always have your bills covered and have a little extra savings to put away!
Include Your Goals Plus Discretionary Spending
Now is the time to put in your additional financial goals plus any discretionary spending, such as going out to eat once a week, your monthly clothing allowance, video games for your son, extra dance lessons for your daughter, etc.
Review Your Numbers
How does everything add up? Is there enough money each month to pay for all of the things you need and want? If so, congratulations! Put any extra money aside to build your wealth. If not, well then you will need to take a look at your expenses and figure out how to make some changes. You can also see this step as an opportunity to determine if you should increase your savings goals by a certain dollar amount each month.
Set up Automatic Accounts
Open a separate savings accounts for bill paying and debt reduction, general savings, and your particular goals (such as a vacation account). Next, use automatic deposit to deposit your money into those accounts in the amounts each one needs. If you are unable to designate more than one account for automatic deposit, make the transfers manually.
Review Your Budget
Life changes. Income increases or decreases, and so do expenses. Goals can change, too. Make sure to review your family budget on a regular basis to stay on track.
That is it! You are on your way to a new financial future.