This post will touch on the basics of budgeting and help you to get an idea of your household’s expenses. We’ll techniques and how to balance your finances.
The best way to start a budget is by examining where all your money goes every month so that you can see where adjustments can be made in order to reduce monthly expenditures or increase savings.
We recommend downloading a free app called Mint (or doing this manually) so that this process is as easy for you as possible. You might also want to consider creating family spending categories like “needs” versus “wants” or “must-haves” versus “luxuries.
It’s important to know immediately that budgeting is not about sacrifice, but rather about being smart with your money. Budgeting is means to an end-which is financial security, peace of mind, and a comfortable retirement.
Learning how to budget can be difficult for a family in which one or both parents work outside the home, as these families may have a very complex array of income sources and expenses.
However, it’s still possible to make the process easier by breaking it down into manageable pieces. For instance, if you’re on a budget that can be divided into four separate categories (wants, needs, wants-need and needs-want) then it would be possible to break these categories down further into “must” versus “nice-to-have” or “added expenses.”
Self-budgeting is similar in concept to budgeting but can become complicated in the types of financial resources that may be available. For instance, if one spouse has a 401(k) from his or her previous employer and a checking account at that same company that may remain open after the other spouse retires, you may want to develop individual budgets for each spouse. Some financial planners recommend that each spouse should have a separate budget.
For a family with two working parents, it may be helpful to make two budgets: one for the husband and one for the wife. For example, if the wife has a part-time job while she is training for her new career as an attorney and her husband is the sole provider, she might have a budget that is based on her receipts from her job plus some recurring expenses like telephone and utility bills; whereas, her husband’s budget might include his salary (which increases every year) and any annual tax issues that he must deal with.
In some families, the parents may have completely different needs. For instance, the mother may have a good job that pays well but doesn’t provide many financial resources, like a separate retirement account or health insurance, and the father might have several income-producing resources that help to support family bills.
In these situations, it’s important to have an agreement in place about how one spouse’s budget is derived from another’s, to ensure that both spouses’ needs are being met.
Budgeting can be overwhelming if you’ve never done it before. But don’t be intimidated. Your first budget will probably not be perfect, but it can be a powerful tool that can help you get your finances under control-and help you build wealth over time.
If you’re starting a family budget for the first time, then here are some tips that will give your financial plan a head start:
Only include expenses and income that you have actually experienced in the last 12 months, or are going to experience in the next 12 months. If possible use the prior year’s tax returns if they are available.
Start in the month of January and work backwards.
Some family budgets are done for a six-month period and then a look ahead is done for the next six months. When you do a budget have it consistent from year to year or you will be in trouble. Here are some things to consider:
Make sure that your income is listed on one line and your expenses are listed on another line. For instance, if you are married, your income would be listed on one line and your spouse’s income would be listed on another line.
You would then total up the two incomes (for families where there is only one parent). You can do the same thing with expenses, listing on one line and your spouse’s expenses on another line.
You should note that if you make less than $10,000 a year then only you will need to calculate your income. If you make more than $10,000 take everything in the previous sentence into consideration and calculate it for everyone (yourself, spouse, and children).
The budgeting process is designed to help you make rational decisions about your money so that you can be financially secure. It can also help you become more self-reliant as it teaches you how to plan and manage your resources and expenses so that your money goes where it is needed most.