Learning how to plan a family budget can be a challenge, but it does get easier over time. The key is to be persistent and keep trying. Also, keep it simple. You can add more detail later if you want to.
There a seven basic steps in creating your family budget
Step 1: How much money do you make?
Step 2: Set some simple financial goals.
Step 3: Where do you spend your money?
Step 4: Categorize your spending into categories.
Step 5: Allocate your take home pay into your spending categories.
Step 6: Monitor your spending.
Step 7: Compare your spending to your budget and adjust if needed.
How much money do you make?
The first thing you need to do is write down every source of income you have. This will include your foster parent pay, money from your day job, yard sales, or anything else. You need to include everything. If this changes each week or each month you’ll need to repeat this exercise as it changes.
Set some financial goals.
It’s critical that you give yourself a goal to work toward. This will give you some motivation when things get difficult. It will be difficult at times. You’ll probably even get tired of talking about money. But to be successful at managing your money you need to keep at it.
Set some short term and long term goals. Give yourself the opportunity to have some quick wins.
Some of your small goals might be:
- Pay cash for our next date night, no credit card.
- Save $100 dollars for our next vacation.
- Pay cash for Christmas this year.
- Save for that next day trip to the nearest amusement park.
Some bigger, long term goals might be:
- Pay off our debt.
- Save for our trip to Europe.
- Save for our next automobile.
- Invest 10-15% our income.
- Save for our children’s college fund.
Depending on your situation your goals may not look like any of these. You set the goals that will keep you motivated and moving forward when it gets difficult.
Where do you spend your money?
Before you can get your arms around your budget you’ll need to understand where your money is going each week and each month. Take some time and make a list of your monthly bills and the amount of each one.
This is the stuff that’s recurring each month like utilities, water, cell phone, car payment, mortgage, etc.
That’s the easy part. Next you’ll need to track your daily spending. I’d suggest you take a couple of weeks to do this exercise. You could even do it as long as a month. Write down every penny that you and your spouse spend. Then categorize each item into a high level category like Food, Utilities, Insurance, Transportation, etc.
Doing this exercise helps you to understand where your money is going. It helps you to see where there are opportunities to make adjustments. Believe me, you’ll probably be surprised when you see it all on one page. You can do this using a spreadsheet, pencil and paper or use an online budgeting tool or app.
Categorize your spending
As you track your spending it will be helpful to put each transaction into a high level budget category. At first keep it simple. Don’t get overwhelmed by trying to add too much detail in the beginning. This is an area I struggled in for a long time. It became a roadblock. I didn’t get traction and start moving forward until I took a step back and simplified. Here are the high level categories I use in my personal budget:
Allocate your take home pay into your spending categories
Spending categories are identified. You’re tracking your spending. Following are some guidelines on how much spending to allocate into each category.
Based on your tracking results, you may find your spending is outside these guidelines. In some areas it may be needed. In other areas you may need to make some adjustments. In the end, your total can be no more than 100% of your take-home pay. Now, set your spending limits for each category for the next month. Every dollar should be assigned a category before you spend anything.
Monitor your spending
– studied your spending habits
– compared your spending to the guidelines
– set your spend limit in each category for the coming month
Now, you need to monitor your spending daily. Every time you spend money it needs to recorded and categorized. I’d definitely recommend doing this using either an online budgeting tool or a smartphone application. If you’re not comfortable doing this you can go old school, use a spreadsheet or paper. It doesn’t matter. What matters is that you’re taking action and tracking every penny.
Compare your spending to your budget and adjust if needed
One of the roadblocks in managing a household budget is feeling trapped and locked into a budget. Don’t feel this way. A budget is living document. It can change over time. This is especially important when you’re learning the process. It will take you a few iterations to get it dialed in. So don’t stress about getting it right the first time.
At least once per week you need to review your spending totals and compare to your budget limits in each category. You may find you haven’t allocated enough into a certain category. Either that or you’re just over spending. At that point you need to either adjust your budget or adjust your spending. Before the beginning of the next month sit down and set your budget again.
Have you created your budget for next month yet? What’s your biggest struggle in sticking to your household budget? Let me know in the comments below.