Ever asked yourself, “What is a family budget?” or “How do I create a family budget?” If you have, then today I am going to help you answer those questions.
Create Your 1 Income Family Budget Now!
What is a Family Budget?
A budget is simply you telling your money where to go. In other words, its when you assign a certain amount of money to a category. For example, you can assign $500 per month for groceries.
Economic Discussion defines a family budget as a statement that shows how family income is spent on various items of expenditure on necessaries, comforts, luxuries, and other cultural wants.
So what is all that saying? It’s saying a family budget is simply a paper, spreadsheet, etc that shows where all your family’s money was spent for a period of time. Some of the categories could include sports, vacations, and obviously food.
Now that we know what a family budget is, let’s answer the next question.
How To Create A Family Budget
I can be honest with you, right? Okay, let me share a bit of background info with you.
Before Mark and I got married, my parents, especially my dad, kept asking to see the budget that we had created for our future family. I thought he was being a bit ridiculous. Obviously we both worked and so that means we would be perfectly fine, right?
Fast forward 2 kids and 2 moves later. I didn’t have a clue about what we were spending money on and got annoyed when Mark kept telling me we couldn’t purchase anything. The problem was that even though Mark willingly chose to maintain the family finances, he did it so infrequently that it didn’t amount to anything.
Luckily for our family, I got smarter and more responsible. I took it upon myself to tweak the family budget that my husband made and I created a system to stay on track. As a matter of fact, some of the very worksheets I use daily are in the financial section of the Home Management Binder.
Now that I have spilled my dirt, I am going to help you create your family budget step by step.
Step 1: Decide who’s going to do the finances
After 10 years of marriage, I can give you this warning, “Choose your person wisely”
Don’t just choose the person who has more financial knowledge. Instead, choose the person who will be willing to track every single purchase every single day. You want someone who is meticulous and organized. Someone disciplined. 10 years ago that person was not me.
Step 2: Paper, App or Spreadsheet
When Mark was in charge of the budget and spending, he chose to create a spreadsheet. Man, it was awesome. He created a different page for each category and it was color-coded. Unfortunately, he didn’t have the time to maintain it.
As of today, we use a paper worksheet that I created for our one-income family. It’s simple but it works.
Whatever method you choose, stick to it, and ensure its user friendly. Don’t choose an app simply because you saw it in an ad or your friend uses it. Choose what works for YOUR family.
Step 3: How much money do you really make?
- Last month’s bank statement (or statements)
- Highlighter (at least 2 colours)
If you are paid the same amount every month then this bit is pretty easy. Look at your bank statement from last month. Highlight any money that you see coming in. Which of those are guaranteed monthly? Make a note of that.
This could be your salary or a child benefit that comes monthly (especially if you are Canadian).
Step 4: How Much Money Are You Spending
This is the part that most people dread, seeing EXACTLY what you’ve been spending.
Now, I want you to get a pencil and get a sheet of printer paper. Do not grab a small scrap of paper because you will not have enough space for this exercise.
Once you have your paper, create a general list of all the categories you think your spending falls under. Some categories are food, entertainment, bills, and kids.
Next, I want you to go through EVERY SINGLE item on your last statement and write the category it belongs to. If you have a line on your statement that looks like this:
Jan 3, 2019 HR Grocers $298.14
then add the category beside it so it looks like this:
Jan 3, 2019 HR Grocers $298.14 food
Warning, this section will take some time so do not expect to get everything done in 30 minutes.
Step 5: Fixed and Variable
- highlighter (a different colour from the highlighter used in step 3)
- statement from step 3
Now that you know exactly what you’ve been spending and you’ve had a few tears and gasps, its time to do something about it.
You are going to use your second highlighter to highlight all the spending that MUST be done monthly. These are things such as insurance and utility bills.
Hey, while you’re at it, make a note to see if you can renegotiate those fixed expenses to make them cheaper!
Make a note of all the fixed expenses on your sheet of printer paper.
Everything else that is not highlighted should be your variable expenses – things that YOU can honestly control.
Get your calculator and total every single thing spent under each category. See a lot of restaurants- add them all up to see how much you spend eating out.
Step 6: Create A Budget
Okay, now we are finally at THE step to help you and your family.
So far you have made a note and totaled all of:
- your monthly income
- fixed spending
- variable spending
Decide on how much you truly want to spend going forward on each category. If you are not over budget (your expenses are not more than your income) then this bit is easy. Simply assign a figure to each category and track to ensure that you don’t go over that.
For the rest of us mere mortals who overspend, let’s keep going. I want you to carefully look at how much you are overspending.
1. How much do you actually overspend?
Subtract the total expenses (fixed and variable) from your income. Now for the hard question:
Did you overspend because you are not earning enough to pay for the basics or are you overspending on things that aren’t necessary?
If you are overspending because you can’t afford the basics, then your family needs to get another stream of income ASAP. A boost in income will help relieve a ton of stress and stop you from incurring more debt.
If you are overspending on stuff that you don’t really need then its time to get disciplined. You need to now assign an amount to each budget category and don’t go over it.
RECAP: At this point, you should have your income written down, your actual expenses written down as well as what each category of spending will be in the future.
Step 7: Balance
Ensure that your future family budget is balanced. To do this, simply subtract your expected expenses from your expected income. Is it zero? Then that’s good.
Another approach is to simply ensure that you are in the plus with your budget.
You have now created a family budget that works for YOUR family. Have any questions? Simply comment below or email firstname.lastname@example.org