Creating a family budget has several benefits. In addition to stretching finances, it also helps you save money to book vacations, splurge on items, and pay for activities the entire family can enjoy. On top of that, learning how to maximize your family budget will ensure that financial needs and goals are met. If you can stick to your budget, you’ll be well on your way to being the steward of your family’s finances.
To make the most of your family’s income, try out these habits and make them part of your financial planning routine.
Navigating Economic Trends
Price fluctuations are outside of our control but affect our purchases on essential items. Having a budget can help plan for these unexpected circumstances as well as the increase in cost of utilities, school supplies, and clothing.
Because the prices of necessary items have consistently been on the rise since the pandemic, it’s safe to say the trend will continue. Use your budget to plan for these needs in advance, and reduce stress related to finances.
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Create a Budget
Although creating a budget sounds like a complicated flurry of calculations, it is actually simple math. First, grab your bank statement, receipts, a calculator, paper, and pencil and follow these steps:
- Assess income from all sources coming into the household. This includes income from primary jobs and secondary jobs like ridesharing or selling items online.
- The next step is to calculate the expenses for all items that are necessities: food, fuel, mortgage/rent, utilities, health and car insurance, debt repayments, phone, internet, etc.
- Make a line item for each of these in your budget and add up the total cost.
- Minus the total necessary spending from your total income, and this is your net income — the amount leftover after all necessary bills are paid. You can now put this money toward savings and discretionary funds.
- Then calculate the cost of all items and services that are not necessities. This is called discretionary spending — spending on items that are not essential but make life better and enjoyable.
- Make a line item for each of these in your budget and add up the total cost.
Is the total discretionary cost less than or equal to your net income? Congratulations, you are living within your budget.
Is the total discretionary cost more than your net income? Uh-oh, you need to cut expenses somewhere to live within your means.
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Reduce Necessary Spending
While taking inventory, take note of ways that you can reduce the cost of your necessary purchases. Ask yourself these questions:
- Could making purchases from another store or supplier reduce expenses in one of your budget categories?
- Could a change in brands stretch dollars further?
- Could comparing prices save pennies? If so, add them to your savings account or put them toward debt repayments. Make every penny count.
- Could a call to a credit card company lower your interest rate? Let them know you’ve been a long-time customer when making this simple request.
- Could a call to your bank lower your monthly loan repayments for having a high credit score?
Be Frugal with Your Fun Money
The next step to creating a budget is to review and enhance spending on non-essential expenses. Look at the optional activities and purchases that your family enjoys. This category includes restaurant meals, entertainment, and hobbies like dance or soccer. Once purchases in this category have been reviewed and funds have been allocated in your budget toward them, look at optimizing spending in this category.
This can be as simple as trading in a couple of nights at the movies for a family game night at home, or making an at-home DIY frappe instead of hitting up your favorite coffee spot.
Being mindful of the amount of money that is going toward discretionary spending is important. Consider ways that spending in this category could be reallocated to another category like debt repayment, an emergency fund, or long-term savings. This is a great way to give your family budget more power.
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Plan for Savings and Emergencies
Budget masters put money in their savings and emergency buckets every month. This habit equips them to cover surprise expenses such as home and appliance repairs or emergency medical expenses. The costs for these can quickly surpass funds on hand, causing stress, but budgeting an amount as small as $50 a month for savings will pay off in the long run.
Stay on Track
Once you have your budget in place, periodically review it. If budgeting is a new activity for your family, review it weekly to monthly so that you can see your progress and assess whether it is realistic for you to stick to it.
Each review ensures that you are staying within the parameters you have assigned for each bucket of expenses. Also, it is important to ensure that staying within the limits of the budget is not causing any gaps in what your family needs.
In review, take time to notice the rise or fall of prices and adjust accordingly. In fact, make adjustments for upcoming cost of living expenses and changes in income.
Ensuring that all essential purchases are being met is another crucial aspect of this review process. Once you are familiar with your budget and are on track with staying within the goals you have assigned, reviewing it less frequently is an option.
Creating and optimizing the family budget might seem like an overwhelming task at first, but doing so will improve your family’s financial situation. As you gain a better understanding of your income and expenditures, and begin making optimal use of your funds, you will notice significant benefits like improved spending habits and a boost in savings. Establishing a budget empowers you to take control of your finances, providing greater stability for your family. And, it sets the stage for creating and achieving financial milestones while effectively managing debt.
