Are you ready to get started on a family budget? Are you overwhelmed? It can seem complicated at first – how do you categorize everything? What about expenses that fluctuate or aren’t monthly? Here are some practical tips on planning the family budget that everyone can stick to.
Let’s face it, no one wants to think about a budget. Least of all me. But being in the midlife stage has me rethinking about how I want this half of my life to go. So, I pulled up my jeans, and sat down with the family and got to work.
Be Realistic With Your Family Budget
Remember that your budget is a tool, not a dream machine. Goals are important, but a family budget should first focus on the numbers you’re dealing with. That’s the basic first step. Once you have a grasp on that, you can begin a bit more idealizing, such as saving for vacations, desired items, etc.
And while vacations and desired items are wonderful, you need to be realistic. It’s not worth borrowing beyond your means just to say you had the most wonderful vacation ever (if you can pay for your vacation with cash or ahead of time, then feel free to splurge). Stay-cations can be just as wonderful, as are local daytrips.
Be Open With The WHYS Of The Family Budget
Sometimes parents try to hide their financial situation from their kids and/or each other. While this may seem like “sparing” the ones you love, in actuality it can cause undue stress on the one family member who does know how bad things are, or how things work financially.
It’s true that you don’t want to overburden your kids with responsibilities that aren’t theirs but, including them in a frank discussion of your financial situation, can go a long way toward easing your burden and garnering their willing participation.
By being open with them, you are creating a way for them to talk about financial matters. This will especially be important when you start teaching them about budgeting when they are a college student. By giving your children realistic expectations, it may be easier for them to understand why they can’t go to that expensive college.
Use Your Net Income As A Starting Point For Creating Your Budget
First, figure out your net income for each month. This means your income minus taxes, insurance, 401K deductions, and so forth. If you are self-employed, subtract estimated taxes, insurance costs, retirement account savings, etc. At this point, you just need numbers.
A lot of times, your income is less that what you think. Be mindful of that. Keeping track of it will prevent any unwanted surprises.
Create General Categories When You Plan A Family Budget
Next, figure out your monthly expenses. If they vary, figure out an average by looking at the last three to six months’ worth of expenses. For instance, if your electric bill was $150 last month, $140 the month before, and $175 the month before that, then you can estimate a monthly expense of around $155 for electricity. Alternatively, you could take the highest amount, $175, and go with that.
It’s a good idea to keep your categories as general as possible while still preserving clarity. Otherwise, you might get confused or overwhelmed by all the “hair splitting.” For example, instead of having “food, paper products, drug items, etc.” as categories, you can lump all those expenses under “groceries.” Items like “pet supplies” can be their own category, but you might want to include vet bills in that category. Here are some suggestions for categories:
- Charitable giving
- Payment off debt
- Home (mortgage, rent, property tax, insurance, repairs, etc.)
- Health Care
- Birthday and Christmas gifts
- Cushion (this is money set aside to offset surprises, mistakes, or unexpected expenditures)
- Personal (coffee, eating out, hair appointments, etc.)
Have A Meeting To Get Everyone Involved
Now comes the most difficult part of the planning a family budget: discussing it with your family members. More often than not, adults don’t want their kids to know about “the numbers”. Unfortunately, in this day and age, it is even more important to inform and teach our younger generation about money.
Set a date and time for everyone to get together to talk. Order a pizza(remember your food budget category?) and sit everyone down. Have your papers and proposed budget to show everyone. I am sure you will agree that there may be a lot of resistance. There may be denial or anger, but it is very important that everyone knows how things stand.
Use this time to hear what other family members think can be added, deleted, or changed. Your kids may have a fresh perspective on things you have that may no longer be important (cable TV was one for us). Bounce ideas off one another. Set goals for vacations and fun. Whatever you decide, do it together.
Let Them Know That Financial Responsibility Affects The Entire Family
Explain how your family finances affect everyone in the household. Be clear and specific, citing fees, tuition, allowances, groceries, etc. and how they all cost money. There’s no need to beat everyone over the head with this information, so to speak; but it gets family members to think a bit about where the money comes from. It’s easy to take things for granted.
And brainstorming with your family about ways to save money will go a long way in keeping them focused and motivated.
Take Note Of Your Actual Expenses
Now that you have a plan of what your budget should be, it is time to look at your actual expenses. You may want to step back for a day or two to get everything together. Have an organized financial center in your home will make that easier.
So far, you have two columns – income and estimated expenses. Now you need to add another column: actual expenses. You can use the previous month’s numbers to get you started. Keep track of the real numbers each week over the next month and see how much/if they differ. This part can be really eye-opening.
Stop And Review The First Steps
At this point, stop and take a look at what you’ve done so far in planning the family budget. Are your expenses greater than your income? It’s time to cut back significantly or find another source of income (or both). If both adults work, maybe it’s time to look to see if it is worth it. The amount you are spending on gas, clothes, lunches, car wear & tear, etc., might be greater than the amount of money you are bringing in.
Sticking To The Family Budget May Mean Cutting Back
If the budget involves cutting back, it’s probably a good idea to cut back in areas that affect the whole family rather than just one member. Otherwise, that one person may resent what seems to be preferential treatment of the others, and you’ve lost your whole-family approach to the budget.
One of the things we have done with our budget is cut back on all the extra channels on our cable. Yes, they were nice, but they weren’t worth the price we were paying. The money we saved from those extras can go towards something else.
Schedule A Date To Evaluate & Update The Family Budget
Grab your calendar and mark a date for everyone to meet and go over the family budget. See what is not working or is definitely working and make any necessary changes. Revisit and rework your goals if necessary. The key thing is to do what is best for your family so you can enjoy life without living beyond your means.
Planning the family budget doesn’t need to be a scary endeavor. By involving the whole family in the process, you are sure to be successful.