How to Easily Set Up a Budget for Your Family
When times are financially tough, that is when I do my very best at tracking our family’s spending. Do you do this too? I know though that I should be tracking our spending all the time, not just when our family is feeling the pinch.
In fact, the choices we make when we are doing well financially can help us avoid having more debt and financial struggles later in our lives.
So I want to share with you my strategies for establishing a budget for your family, paying down debt, and celebrating your financial victories.
Choose a Tracking System That Works for YOU
Financial software and online budget management systems have come such a long way and can be an easy and convenient way to stay in constant contact with your financial situation, but they aren’t for everyone.
You need to decide on a system that works best for you and that you will utilize daily and not necessarily the latest and greatest thing. For many years, I number crunched with a good old-fashioned calculator and kept a written ledger of our expenses. This made me most comfortable.
Now I rely on Mint for my financial tracking and I love that they have alert options that notify me when unusual spending happens in our accounts. It’s an almost effortless way to track and view my family’s spending and helps highlight where we need to make financial cutbacks in different categories.
Set Up Your Spending Categories
Before you track your spending, you need to set up categories for tracking it. This will let you see where your money is going, especially the discretionary spending that can easily get out of hand when not monitored.
These are the spending categories that work best for me:
- Home: Rent or Mortgage, Insurance, Property Taxes, & Annual Home Maintenance Visits
- Auto: Car payments, gas, insurance, repairs, registration, and maintenance
- Utilities: Monthly bills for electricity, water, gas, phones, internet, and cable.
- Healthcare: Doctor visits and prescription medication
- Debt payoff: Credit card bills, student loan bills, and any other debt.
- Grocery: Grocery spending (I also keep paper products and other miscellaneous items under this one to keep things easy)
- Membership expenses: Gym memberships, kid’s activities (dance, summer camps or sports activities)
- Dining out & entertainment: Movie ticket, concerts, dinners outs, vacations, etc…
- Personal: Clothing and haircuts
- Charitable donations
Begin Tracking Your Spending
It can be handy to have a small expandable organizer to keep track of your receipts to enter at the end of each day. Jot down daily expenses to see where your money is going.
In this first month, it can be quite eye-opening to see where all of your money is going. The lunches out, that trip to Target to kill some time, the impulse purchases made at the grocery store…all of it adds up. When you see where your money is going, it makes you very aware of things you need to do to cut back.
Establish Financial Goals and Rewards
After the first month, evaluate your spending and make goals to lower any spending that you can. Typically, the grocery budget and discretionary spending categories can be great places to start.
Make a goal to lower your family budget by $100 for the month, for example, and then put that saved $100 towards debt payoff (always the priority) or towards a modest family reward for a job well done!
One thing that really helped our family pay down our debt and recover financially was to apply any and all savings towards our debt. You can choose to do this one of two ways and I think this depends on what is your most important goal.
In order for our family to feel like we were making progress towards our goals, we took any extra money we had and put it towards our smallest debt. Once we paid that debt off, we took our extra money plus the payment we would have made on our debt and rolled those two amounts over to the next smallest loan.
We repeated this process until we had paid all of our debt off and felt the relief that only comes from financial independence. This is called the snowball approach to paying down your debt.
Another tactic is to not take the smallest loan amount, but the loan that carries the highest interest rate. This is called the avalanche approach. For us, the reward of paying off small loans made our larger goals more achievable.
Although some financial experts might disagree with the philosophy of tackling debt in this way since savings can be achieved by organizing by highest interest rate. However you do it, smallest loan or highest interest rate, debt payoff should be your top priority.
After each bit of debt was paid off, we celebrated as a family. We threw an at-home dinner party and toasted to our achievements and explained to our kids what an accomplishment this was for us. Making them a part of the process and the celebration gave us a unique dialogue with our children that I hope will prepare them for making financial decisions in their own lives.