How to Make a Family Budget

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When it comes to managing your family’s finances, knowing how to make a family budget is crucial.

Without a budget, you’re prone to fall into the trap of overspending, getting into debt, and ultimately living paycheck to paycheck.

None of these things will lead you to the financial freedom that you deserve and desire. 

The only way to avoid these financial pitfalls is to get on a family budget that works for you and that you can stick to.

If you’ve never created or stuck to a budget before, it can be intimidating.

But once you get the hang of it, I assure you that you’ll never want to handle money without it.

In this post, I’ll walk you through how to create a family budget for your family step-by-step.

What is a family budget?

A family budget is nothing more than a spending plan for your family.

The overall point of a budget is to know how much money you have coming in and to plan how much money will go out to cover expenses and other spending.

Budgeting is is the cornerstone of money management at any level. It’s used by individuals, families, and even businesses to create a financial plan and to measure financial health.

There is no one size fits all budget that exists for every family.

Let’s explore how to create one for your family.

1. Determine your financial goals

First, you need to determine your financial goals.

Your budget (spending plan) should reflect your financial goals.

For example, if your goal is to pay off debt, then there should be money allocated for debt payoff in your budget.

If your financial goal is to save $10,000, then your budget should show money allocated toward savings.

So before you even create your budget, you need to determine what your family’s financial goals are.

If you’re stumped on what that should be, here are some ideas:

Those are just a few ideas to get your brain going. 

Ultimately, you’ll want to determine your goals with your spouse and make sure that you’re on the same page.

Below is a great podcast episode on how to get on the same financial page as your spouse.

2. Review income and expenses

After you have established your financial goals, the next thing you need to do is to review your income and expenses.

Your income is every dollar that is coming into your household. 

Calculate what that is on a monthly basis. This is how much money you have to cover your expenses each month.

Do not include credit card limits. That is a liability (expense), not income.

Typically, your expenses are the same month to month.

For example, your cable bill will likely not change between months, nor will your mortgage.

To get a good understanding of of how much you actually spend, download your past 3 months’ bank statements. Use them to identify what you spend money on on a monthly basis and how much your expenses sum up to be.

Is it more than your income? 

For most families it is and they aren’t even aware. That’s how they stay in the cycle of being in debt and living paycheck to paycheck.

Budgeting will help you see this in advance so that you can make adjustments to your spending.

Budget Categories

There are two main categories when it comes to budgeting. The first is your income and the second is expenses.

When budgeting, you need to consider all of your income sources, not just from your job. This would include large windfalls of money, such as a tax refund or bonus, passive income, alimony/child support, and any miscellaneous income (gifts, refunds, etc.).

You are accounting for every dollar that comes into your household, so all income needs to be included.

Expenses will vary by household; however, there are some general categories that your expenses will fall into.

  • Giving
  • Saving
  • Housing
  • Utilities
  • Food
  • Insurance
  • Personal Development
  • Personal Care
  • Debts
  • Children
  • Clothing
  • Transportation
  • Medical/Health
  • Household Items
  • Recreation/Fun

Within these categories, you can get even more granular. In fact, our budget has about 90 line items of expenses that we incur throughout the year.

You don’t have to get that specific, although it brings greater visibility to what you’re spending on. 

3. Decide on a budgeting method

Once you’ve reviewed your numbers, it’s time to decide on a budget method going forward.

The two most widely used budgeting methods are the zero-based budgeting method and the 50/20/30 budgeting method.

What is a zero-based budget?

The concept of a zero-based budget is quite simple.

Let me explain…

This budgeting method requires that you designate how each dollar of your income will be used.

For example, if your income is $5,000 per month, you will need to identify how that $5,000 will be used—down to the last penny.

This doesn’t mean that every penny of your income has to be spent.

Some of the money can be allocated toward saving, investing, or paying down debt.

Ultimately the idea is that every dollar has an assignment. 

The term zero-based is derived from the fact that when you subtract all of your expenses and allocations from your income, the difference should be zero in your budget.

This means that you’ve successfully assigned every penny of your income to something. You’ve planned, in advance, how the money will be used.

With this budgeting method, there are no guidelines on how much money you should spend on each budget category

As long as your expenses do not exceed your income, then you can allocate your funds wherever they need to go based on your financial goals.

However, if you need help determining how to allocate your spending, there are some recommended budget percentages that you can go by.

What is a 50/20/30 budget?

The 50/20/30 budgeting method is an easy rule of thumb way to allocate your spending. 

This method suggests that you allocate 50% of your income to needs, 20% to savings, and 30% to wants.

So let’s go back to the $5,000 per month income example. 

In this case, you would allocate your income in the following way:

$2,500 – Needs

$1,000 – Savings

$1,500 – Wants

I’m sure you’re wondering what constitutes a need or want and what you should be saving for.

Needs are things that you need to survive.

This would include your shelter, transportation, food, utilities, insurance, and health care costs. Debt repayment would also fall under this category, as it is a financial obligation.

As you might have already guessed, wants are those things that aren’t necessary to survive.

This includes personal care, entertainment, and discretionary spending.

Lastly, the saving referred to in this method includes retirement savings and your emergency fund. It can also go toward your long/short term savings goals or travel fund.

Contrary to the zero-based budgeting method, the 50/20/30 budgeting method gives guidance on what you should spend, although it certainly does not mean that you have to spend that exact amount.

Dave Ramsey Household Budget Percentages

Dave Ramsey’s budget percentages are also widely used when creating a family budget.

Below is his rule of thumb for how to allocated your funds across your expenses.

  • Giving – 10%
  • Saving – 10%
  • Food – 10-15%
  • Utilities – 5-15%
  • Housing – 25%
  • Transportation – 10%
  • Health – 5-10%
  • Insurance – 10-25%
  • Recreation – 5-10%
  • Personal Spending – 5-10%
  • Miscellaneous – 5-10%

4. Create your budget

Now you can get into the actual creation of your budget.

Regardless of which method you choose, the process for creating your budget is still the same.

  1. List your income
  2. List your expected expenses for the month or pay period
  3. Compare your income to your expenses (ie. Do you have enough money to cover them?)
  4. Make adjustments to your planned spending
  5. Track your spending real time
  6. Review

Below are links to two great articles that will take you step by step on creating either of those budgets.

Family Budget Calculator

If you’re not sure where to start, you can use the below calculator to get an idea of what your family budget will be based on the previously mentioned budget percentages.

This is a 50/20/30 budget calculator and Dave Ramsey budget percentages calculator.

How do you manage a family budget?

Managing a family budget comes down to one thing: communication.

It’s communication with your spouse about your financial goals, spending, and deviations from the plan. 

To facilitate that discussion, I recommend having a family budget meeting to review what the spending plan is for the month. It is also the time to discuss if additional funds are needed for special occasions and events.

Your family budget meeting should include:

  • How well you did to last month’s (or pay period’s) spending plan
  • Expenses that you need to account for in the coming pay period or month
  • How you are trending to your financial goals (ex. Paying off debt, saving for a vacation, etc.)

Your budget meeting is a great opportunity to include your children in the discussion about money and to teach them about budgeting.

In addition to having a budget meeting, you’ll need some sort of medium to share and update the budget with your spouse.

My husband and I prefer using a spreadsheet that we can both access. However, there are apps that you can use to help with budgeting as well.

What is the best family budget app?

Family Lifetime Membership

One app that I’m particularly interested in and have been researching is Qube Money.

In fact, I am a beta tester for the app and will do an official review of the app soon.

This app was specifically designed for families in mind, which is why I love it.

It combines budgeting, the envelope system, and debit cards linked to your bank account to create a full-service money management app.

Your kids can be included with their very own kid’s card.

The cool this about the app is that in order to spend money, you have to use the app to designate what category in your budget it is coming from. 

If there are no funds or if you don’t choose a category, the payment will get declined.

It sounds a bit harsh, but it’s perfect for the family who needs a little discipline when it comes to spending money.

Check out the below video to learn more about Qube Money.

The app is set to release later this year, however, you can get early access and a lifetime family membership now!

You can learn more about the app at QubeMoney.io.

Template for Family Budget

Though I strongly recommend having your budget in digital format, I understand that for some people writing things out is better.

You can grab your free copy below.

monthly budget worksheet

Final Thoughts on Making a Family Budget

Having a budget is paramount to your financial success. You should always have a plan for you money and the way to do that is through budgeting.

Don’t be intimidated by it.

Creating a family budget really isn’t has hard as you think.

Find a budgeting method that works for your family, stick to it, and you’ll find financial success!

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