The current global economic uncertainty is a sign of worry for many homes. Meanwhile, many workers are gearing up for a sack or furlough if there is no economic upturn. This situation has made it essential for homes to be prudent in how they make use of their resources. Hence, every home needs to make a family budget or review the old ones they have.
There are three basic ways to manage your money; you can decide to spend it, save it, or give it away. Making a family budget is a vital part of having a strong financial foundation for your home. A reasonable budget should help you to manage your money. For example, your budget enables you to control your spending better, helps you save more, and pay off debt or stay out of debt.
Regardless of economic or financial standing, every home can benefit from making a simple family budget and managing it. A budget gives you a sense of control over your money. It would help if you looked at a budget as a financial foundation. However, each family’s financial situation is different, so their budget will also be different.
Methods of making a simple family budget
There are three conventional methods for you to make, track, and monitor your budget. Each of these systems has its technique, although all of them concentrate on organization and attention to detail. Below I’ll discuss them to help you see which one will be effective for your home.
1. The Paper and Pen
This type of method is the first used in preparing a budget and the least expensive to make. Moreover, it is simple and less stressful. You can write down your income and all your expenses. After that, you should try to balance them out.
2. The Spreadsheet
The use of a spreadsheet is a popular method of making a budget. The most commonly used one is Microsoft excel. A spreadsheet helps you organize a lot of data easily and quickly and does the calculations involved. You can also look up the internet for free samples of excel budgeting worksheets for consumers you can use.
3. Financial and Free Online Software
Several software programs can help you with budgeting. Financial software programs like Quicken are leading products that you can try. On the other hand, you can try web-based free software programs like Manilla and Mint. They allow you to create and group your expenses into categories and track your spending.
Purpose of Making A Family Budget
The purpose of making a budget for your family is to help you achieve specific goals. Therefore, you must have clear goals in mind you would like your budget to help you achieve. Having short and long-term financial goals would be best. However, the goals you set should be realistic and achievable.
Your short-term goals cover your current expenses and necessities to run your home daily. Examples of short-term goals include; household supplies, insurance payments, rent payments, car loans, utility bills, child care, food, cell phone, and mortgage payment. Also, clothing, subscriptions, dining out, and vacations.
Long-term goals could include retirement savings, investments, college funds for your kids and grandkids, and charitable donations. Your long-term goals should reflect your idea of the future you want for yourself and your family. Having these clear goals in mind makes you effective in structuring your budget to get your desired outcome.
What to do When Making A budget
1. Calculate Your Income
The next step is for you to calculate all the income that enters your home. Firstly, you should sort and add together all the reliable sources of income. For example, monthly salary from your job, alimony, returns from investments, child support, and cash from outside jobs.
Moreover, if you are self-employed or have a fluctuating income, you can calculate the average monthly income or an estimate of the income you expect monthly. It’s important that you include the income from everyone that is contributing financially to the home. Then you can see clearly what your family should have monthly and plan how to make use of it.
2. Add Up Your Expenses
After knowing your total income, you need to check and evaluate your home expenses. You can break down your expenses into three classes, fixed expenses, variable expenses, and discretionary expenses.
- Fixed expenses: These are expenses with a fixed monthly amount—for example, mortgage or rent, property taxes, child support, and alimony. Therefore, you should list all the fixed expenses and the amount.
- Variable expenses: These are expenses that can change from one month to another based on the need for the home. Groceries and gasoline expenses can differ monthly due to usage. So write down the maximum amount you plan to spend in this category or the maximum amount you expect the bill to be.
- Discretionary expenses: These are optional expenses and may include recreation and entertainment. Also, gym membership, holiday trips for your kids, and magazine subscriptions would fall into this category. They should be the first expenses to be sacrificed if you can not afford your fixed and variable expenses.
3. Find The Right Balance
Remember that your goal in budgeting is to make sure your family expenses do not exceed your income. Therefore, you need to bring your expected income and expenditure into balance. So if your expenses are more than your income, then you need to make some adjustments. You can make this adjustment in two ways, firstly, by increasing the total available income. In other words, you need to get more money into the home.
Secondly, you can look at your variable and discretionary expenses and make reductions. You can reduce items such as groceries, entertainment, clothing expenditures, and gas without too much discomfort to achieve this balance. Finding the right balance will help you achieve a family budget.
4. Commit To Your Budget
After balancing your budget, you need to follow through on it. That is to say; you must stick to the plan on your budget. You can decide ahead of time what you’ll use each paycheque for. Doing all these will help you to keep track of how you spend your income. Also, check your budget against actual expenditures each week to ensure you are staying within your spending limits.
Putting these steps into practice will go a long way to help you make a simple family budget.
Photos by NORTHFOLK and Artem Beliaikin on Unsplash.