It is difficult to overestimate the importance of budget planning. Planning your budget is worth it even for those who live alone, but it is simply necessary for a family. The family budget is much more complex: it often has several sources of income, but the expenses are more diverse. Family budget planning helps to keep order and peace at home, afford new purchases, and go on vacation. But sometimes, budget planning for families can be challenging.
Our team had a great discussion about family planning with Shania Brenson, the сo-founder of 15M Finance. We found out that people often turn to budget planning after they’ve run into financial trouble. That’s why we decided to expand this topic and make it clear to our readers.
In her opinion, loans with no credit check are more popular, as people come with more detailed planning, already faced with a lack of money. Plus, most of them have a low credit score and don’t want it to be checked through major credit bureaus.
So how do you learn to manage a family budget? What is needed for this? Where to learn the skill of managing money?
How to Plan Your Family Budget?
Creating a family budget is crucial if you want a stable financial situation. Sometimes you don’t even imagine the actual state of affairs until you start to streamline everything. Our spending habits keep many secrets from ourselves.
The first step in planning a family budget is an awareness of the need for budget planning. It is much easier to do it when you clearly understand why you are creating a family budget.
Set a Goal
It is generally recommended to set aside 2% of your income. But you can set any financial goals for yourself: save $50 a week, increase your reserve fund by $10,000 a year, or set aside 20% of your child’s college fund in two years. Next, plan your family vacation, and check ticket prices and accommodation rates. Finally, add here the average amount of expenses for food and other expenses, for example, activities that may interest you on vacation. When you understand precisely how much you need, it’s much easier to figure out how much you need to save.
Calculate the Family’s Income
Count all your income, even those that seem insignificant to you. Perhaps you walk the neighbor’s dog once a week or sell clothes that don’t fit you once a year; every couple of dollars counts. But even this can count for your budget. Of course, monthly income (take-home pay, it’s essential) is your base, but when it comes to family budgeting, every cent counts.
If one of the family members plans to quit, try to live for at least a month on the remaining salary. So you will better understand what to prepare for and whether you will be comfortable.
Calculate your Living Expenses
Household finances hide a lot of expenses. It’s child care, bills, receipts, mortgage debt, credit card debts, debts on other loans, pay stubs, tax allowances, taxes paid on pensions, tax relief, buying food and clothes, and a lot of different categories. And it would be best if you remember them all.
Do not forget that besides fixed expenses, there are also unplanned ones. Sometimes we put a stain on our favorite shirt, and dry cleaning is the only option. Sometimes our shoes suddenly lose their heel. One of the family members may get sick; someone may be invited to a wedding or birthday. So a separate item in the list of expenses in your household budget should be unforeseen circumstances.
If it is difficult to calculate all the expenses (it is really a very difficult task), use credit and bank statements. If you do not often pay in cash, then the statements will have almost everything that interests you, including discretionary spending. It will help you better understand and, most importantly, control your budget.
Create a Budget Worksheet
Write a list of all your income and expenses, check your bank account, and analyze it, so you’ll see how much money you are spending and decide how much you can save. Spending vs. saving is important when you are into budgeting.
Revise your budget. Divide your spending into necessary and those you can live without. Of course, you do not have to give up all the nice shopping and entertainment. Still, it is essential to understand what you can sacrifice if it is necessary. In fact, placing priorities is important. But do not save on everything, forbidding you to buy coffee in a coffee shop. If you do not have any pleasant expenses, you may stop saving money very soon.
By the way, you can plan a budget in several different ways. You can choose one of them, or you can combine them.
50/30/20 Budget
With this formula, it is usually convenient to distribute the household budget – 50/30/20. According to the formula, 50% of a family’s budget is for fixed costs – paying bills, buying food, fueling the car, paying off an existing mortgage, or another debt. Then you allocate 30% to discretionary spending like gifts, dining out, and some entertainment. And the remaining 20% is the money you save for retirement, children’s education, your future vacation, or just an emergency fund.
Zero-Based Budget
It is a fairly radical type of budget planning, and it would be perfect as a temporary measure when you need to raise as much money as possible in as short a period of time. It means that after deducting all the necessary expenses, your budget is zero. And this does not mean that you will spend everything — vice versa. Whatever is left and saved goes into your savings account, your retirement, and basically your emergency budget. So you don’t need to track all your expenses; you just need to save as much as possible. This is kind of a hard type of saving many, but it can be great for you.
Envelope Budget
The classic envelope budget assumes that you lay out the necessary amounts for specific envelopes. It means you have an envelope, for example, for paying bills, an envelope for food, an envelope for new clothes, an envelope for saving money, and so on. Someone uses a larger number of narrowly targeted envelopes; someone needs more generalized ones.
There is also a way out for those not used to cash. You can make “envelopes” from different accounts – open several under important categories, and each type of expense starts paying with them.
Use Apps to Manage your Budget
In the twenty-first century, there are particular applications for almost everything. Be that as it may, there are services, programs, and applications to plan and control your budget. So if you decide to track how much you spend and the amount of money left in your wallet, choose a website or an app that can help you manage your finances. Apps, services, or other websites can help you to track your budget and make suggestions on how to save more money. You can use, for example, Mint (it’s free), Goodbudget (also free, good for envelope budgeting), or YNAB (costs $14.99 per month or $98.99 per year, good for zero-based budgeting).
Tips & Tricks for Money Saving
So now you have a budget worksheet that makes suggestions on how to create your budget. And what should you do if you begin counting your income and expenses and realize that there is not enough money for everything? Your future vacation is at risk, and the emergency fund is empty. So here are some tips to save money.
Pay off your loan and credit card debt
Of course, easier said than done. But there are still a couple of options. First, pay attention to debt consolidation if you do not have the money to pay off all debts immediately. You will not get rid of all payments, but you will collect them into one (budget planning will become more accessible). What’s more, after a thorough search, you can find debt consolidation terms that will save you money on interest at least.
Review your expenses
We all have costs that we can avoid. For example, you can take food from home instead of buying it in the cafeteria, cook for yourself instead of ordering pizza, eat in a restaurant, and so on. Of course, it is not necessary to exclude such expenses completely – sooner or later, you’ll come back to it with a vengeance. But it is possible to reduce and limit them. You have no idea how much money you can actually save on it.
Find an alternative source of income
It could be part-time work, freelancing, or even pet sitting. Something that does not take much time but something that brings money. Ideally, it’s something you enjoy doing. You can also find a passive source of income. For example, refurbish your basement or attic, perhaps an empty room, and rent it out.
Try a savvy shopping
Second-hand clothing stores are full of quality clothing. Not to mention it is much more eco-friendly and cheaper shopping. At a minimum, thanks to second-hand stores, you can save on those things that spoil most often.
Bottom Line
Family budget planning can be challenging. It is important to take into account all sources of income and all expenses and allocate funds in such a way that all needs are covered. In addition, it is important to choose exactly the type of budgeting that will suit your family and will be the most convenient and practical. Choosing the right family budget planner will save you a lot of the hassle of budget planning.
