It is hard to make ends meet when you have no money management system directing your family finances. And if you don’t step up, your lack of financial stability will eventually take over and stress you out. So, before that nightmare happens, here’s a budgeting process to help you create your family budget plan and stick to it!
Setting up a family budget plan is not only to reduce household costs but also to help you spend more wisely. Money management keeps you out of debt and, more importantly, makes you prepared for unexpected expenses. And extra savings means more time for the family than worry. Follow these steps and family budgeting tips to start your journey towards financial freedom.
1. Choose a Budget System That Suits You
A budgeting system that works is your starting point. Having a budgeting tool will keep the family budget plan together and you on track. Here are some options for you to choose from:
- Pen and paper method. It may seem old-fashioned in today’s digital age, but this budgeting system is just as effective as any financial software. You’ll be needing an accounting ledger, budget calculator, math skills and some patience with this one. But I find this method straightforward and inexpensive. Writing the figures down also make your plan easy to understand and remember.
- Excel spreadsheet method. You can download ready-made budget templates or find inspiration from samples online to design your own. Go for a simple budget template that’s comprehensive yet easy to follow. One downside of a budget worksheet, though, is it requires some computer know-how. But, once you learn how to do it, it’s easier for you to update your family budget plan and turn it into a routine.
- Budgeting software method. Aside from the many downloadable budget software online, you can also check various family budget apps for mobile use. Some of these applications are not free, though, and need personal detail registration. However, most of them are highly intuitive and allow you to link your separate savings accounts for faster tracking.
2. Identify Your Sources of Income and Expenses
With your budgeting tool ready, the next step will be to determine your incoming and outgoing money. Here, everything that makes you earn or lose money counts. To start, find all receipts, bills, credit card statements, bank statement, payslips, student loan interest and other sources of financial information.
3. Subtract Your Monthly Expenses to Your Gross Income
After gathering all paperwork, input everything into your budget system and have a total for both money categories. Then, subtract your expenses to your family income. Is your total income lower than your monthly expenses? If not, you can probably skip the next steps and find ways to help you stay on budget. However, if you do get a negative figure, don’t worry. This step aims to make you see your current financial state and motivate you to apply constructive changes.
4. Subcategorise Your Everyday Expenses
One way to improve your financial status and your family budget plan is to evaluate your spending habits. Doing this will make it easier for you to see whether your expenses are necessary or can be reserved for later (or perhaps, totally avoided). Here’s how you can best group them into subcategories:
- Fixed expenses. This type represents your needs or regular expenses that come every month and do not change much in value. Utility bills, credit card and loan payments, health and car insurance, house payment or rental fee, land taxes and school fees are examples of fixed expenses.
- Variable expenses. This one pertains to your needs that changes in value, depending on usage or demand. Food or groceries, clothing expenses, medical bills, public transport or car repairs and home maintenance are common examples.
- Discretionary expenses. This type makes up your wants, like dining out, family holiday, holiday presents, movie or concert tickets and other recreational activities. These are expenses that make life more fulfilling but are not as necessary.
5. Apply Ways to Keep Your Monthly Budget Under Control
Now that you know where your money goes, it’s time to look for ways to make spending cuts. Discretionary expenses, in particular, should be your focal point as it’s your main culprit for overspending. Is pizza delivery every Friday night necessary? Do you have to see a movie and eat out twice a month? Will local travel be more practical? Try to implement spending control as much as possible without depriving yourself of a happy family life.
Next, check your fixed and variable expenses, then find potential areas to help you spend less. Perhaps, you can make smarter grocery choices or start habits to reduce your electricity bill and other utilities. Small positive changes matter! And once you start reducing your outgoing money, you can level things up by taking on side jobs to increase your spending money.
6. Use the Extra Cash for Realistic Financial Goals
When your family budget plan becomes stable, your next step is to decide where your extra money should go. Having money goals, big or small, will keep you motivated to continue spending less and saving more.
I recommend going for short-term goals first. For example, you can start with clearing your credit card debts and reserving credit card usage to emergencies. Seek credit counselling services if needed. You can also set up an emergency fund, create separate bank accounts or apply for a savings plan. When you achieve better financial stability, long-term goals can come into the picture. You can probably plan to be debt-free, buy a bigger house or start your retirement savings next.
7. Maintain your Family Budget Plan
Make sure to keep track of your income and monthly spending from now on. Apply minor adjustments to your budget system when necessary, and reward yourself for a job well done from time to time. Consult your partner or professionals for future financial decisions. Also, have family members help you maintain a successful budget plan. Having a team support your money management goals makes the fruits of your hard work more worthwhile!