Family life can be hectic: When you’re not helping the kids with their homework, you’re chauffeuring them around or hustling to get dinner on the table every night. You may have asked yourself: “How do I make a family monthly budget?” Don’t worry if you moved on to something else because the idea seemed too daunting.
Setting aside some time to track how much money is coming in and where it’s going out can give you a clearer picture of where your family stands on day-to-day expenses and allow you to plan for fun extras as well as long-term goals. Here are 5 steps for creating a monthly family budget.
TALLY UP YOUR TOTAL TAKE-HOME PAY
The first step to creating a realistic budget is understanding how much money you have to work with. Add up what’s actually landing in your bank account each month from each spouse’s salary — after taxes and any other payroll deductions (such as retirement contributions and health care premiums). Remember to include any income brought in from freelance work or side gigs and be sure to set aside money for tax bills if it’s 1099 work.
Using a household budget worksheet can help you map out these expenses and easily update them as things change.
IDENTIFY YOUR FIXED EXPENSES
Next, you’ll want to take stock of the fixed expenses that keep your family’s life going, such as mortgage payments, daycare, groceries, utilities and car insurance. Usually these expenses are inflexible, but they’re also usually pretty easy to map out as they don’t change much from month to month. Generally, fixed expenses should comprise about 60 percent of your budget.
One extra step here: Don’t forget irregular fixed costs such as quarterly water bills and annual school tuitions. Add those up and divide by 12 to figure out how much money to put away each month in your savings account so that when those bills roll around, you have the cash to pay them.
ASSESS YOUR GOAL FUNDING
This category includes saving toward both short- and long-term goals, from a family vacation this summer to your retirement decades from now. In this step you’ll want to set up an emergency fund (typically six months of expenses) and allocate the amounts of money you are putting toward your retirement savings, accelerated debt paydown and the kids’ college tuition funds as well as your disability income and life insurance premiums. Don’t leave out what you’re saving for your personal goals such as career advancement classes or for that dream week in the Caribbean. Overall, about 20 percent of your income should be dedicated to savings and investing.
This is also the place to list any contributions you are making to 401(k) plans, IRAs or 529 college savings accounts. Making progress toward these goals — and enjoying the rewards when you reach them — can help keep everyone motivated to stay on budget.
ADD UP YOUR DISCRETIONARY SPENDING
This category covers the money you spend on having fun such as eating out, signing the kids up for soccer, attending entertainment events or having professional family photos taken.
If it feels challenging to calculate an amount for this category, try adding up what you spent on everything that fits into this category over the last three months to determine an average. This can help you determine your expenses for a typical month, which should generally come out to no more than about 20 percent of your overall income.
PUT IT ALL TOGETHER
Take your family’s total monthly take-home pay from step 1 and subtract from the total your fixed expenses (step 2) and the amount set aside for goal funding (step 3). The number remaining is what’s available for your family’s discretionary spending. If it’s higher than the discretionary amount you came up with in step 4, that’s great: Your family is living within your means, and you might even have a little extra cash to apply toward funding one of your goals more quickly.
But if you find you’re overspending in the discretionary category, don’t panic. Take a look at your expenses to see what’s taking up most of the budget. Consider whether there are places to make budget cuts, such as subscription services you’re not using. You may also be able to lower some of your bills by shopping around for car insurance or doing some meal planning before you hit the grocery store.
You’ll want to repeat this exercise as often as your priorities change — this will also keep the communication lines open. So try to have fun with it and be sure to celebrate with the occasional splurge.
If you need help creating a budget and assessing your savings, a financial advisor can help you determine how much to put toward these goals so you know that you’re on the right track.