Are you ready to get started on a family budget? Or does the thought of budgeting leave you feeling overwhelmed, restricted, or even frustrated?
Whether you’re a budgeting beginner or a naturally frugal person, getting started with a budget can seem complicated. How do you categorize everything? What about expenses that fluctuate or aren’t monthly? And what if your spouse isn’t on board?
The best thing to do is take a step back and look at some practical steps toward creating your family budget. Here are some tips.
Use Estimates and Actuals, not Ideals
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.
One of the most freeing things that I learned about budgeting came from the Cash Fueled Life course. One of the first lessons covers taking charge of your budget, which means focusing on your actual categories, as well as focusing on only the things that you can control.
Especially if you struggle to get your spouse or partner on board with your budget, you can still make financial progress just by focusing on the things that you’re in charge of, like your clothing category or saving money on your groceries.
Once you have a grasp on that, you can begin a bit more idealizing, such as saving for vacations, desired items, etc.
Start with Your Net Income
First, figure out your net income for each month.
Your net income is simply your take-home income (the big number, or “gross income,” on your paycheck minus taxes, insurance, 401K deductions, etc.). If you’re self-employed, subtract estimated taxes, insurance costs, retirement account savings, etc.
Keep Categories General
Next, figure out your monthly expenses.
If your expenses 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 little things. 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 the budget categories you may need to include:
* Charitable giving
* Paying off debt
* Home (mortgage, rent, property tax, insurance, repairs, etc.)
* Vehicle (loan/lease payment, insurance, gas, repairs, etc.)
* Utilities (water, electricity, gas/propane, cable/phone/internet, etc.)
* Birthday and Christmas gifts
* Cushion (this is money set aside to offset surprises, mistakes, or unexpected expenditures)
* Personal (eating out, hair appointments, etc.)
Review Your Budget
At this point, stop and review what you’ve listed so far.
Are your expenses greater than your income? It’s time to cut back significantly or find another source of income (or both).
Are your categories set up realistically? It may take some time to fine-tune your budget, but try to make sure that you’re including everything, even your Starbucks habit.
After you’ve used your budget for a while, you can review it and make sure that it’s in line with your priorities and financial goals, but for now, just make sure that it’s accurate.
List Your Actual Expenses
So far, you have two columns – income and estimated expenses. Now you need to add another column: actual expenses. Keep track of the real numbers each week over the next month (three months would be ideal) and see how much/if they differ.
To track your budget and what you’re spending, try using a cash-based system. I loved the Cash Fueled Life course to create a realistic budget, and the worksheets at the end of each lesson are really helpful to get you thinking about your current spending habits and your “goal” habits.
Once you’ve tracked your spending habits, you’ll be able to see patterns in your spending. At that point, think about your spending and saving goals and how you’d like your money to work for you. Start tweaking your budget to match your debt paydown and savings goals.
Now you’re well on your way to a usable budget!