5 Steps to Setting and Maintaining a Family Budget
Posted: September 15, 2021 in Achieving Financial Goals
Setting a family budget is often the best way to make sure every bill is taken care of and every member of the family is covered for basic needs like school supplies, new clothes, and daily expenses. Without a budget, it's easy to overspend in one area and wind up in a cycle that has you playing catch up with bills and paying late fees for months. Although, it's not always easy to set your first budget. If you're wondering how to budget family finances for the first time, here are five easy steps to help you get started with a budget plan everyone can understand.
Step 1: Sort Your Outgoing Expenses
You'll need to set up a few categories for your expenses to be able to adequately prioritize them. The first step in doing that is to separate the regular expenses you are billed for and the cash purchases or payments for services you make. While they might be necessary, those cash expenses are typically discretionary, meaning you can choose when you spend the money and postpone purchases if needed. Bills are commitments that need to be addressed before there are consequences.
As you're listing cash expenses, make sure you organize them under broad categories like groceries, household cleaning items, clothes, and entertainment. If you get too specific, your lists will be hard to follow and manage.
When sorting your bills, it's helpful to separate the ones that affect your day to day life like home mortgage payments, utility bills, and insurance from debt, medical bills, credit card bills, and other expenses. As you look at your list of expense categories, you'll see there are necessities in both the bills and cash expenses column, as well as items that have lower stakes for late payments or postponed purchases.
Step 2: Prioritize Your Expense Categories
Rank these expenses from high to low priority so you understand which ones need to be paid first. Food and shelter are easy to spot as core necessities, but there are considerations beyond just basic living needs. Consider the costs of paying late fees for each bill and the grace period given before there are serious consequences. For cash expenses, consider which ones you can safely postpone or cancel if you need to take care of an emergency expense. This kind of functional budget planning helps make sure the final budget is flexible in the case you have unexpected obstacles disrupt your cash flow.
Step 3: Average Costs for Variable Expenses
Variable expenses like your groceries, utility expenses, and necessary incidentals like clothing tend to vary quite a bit throughout the year, and for a lot of reasons. The best way to make sure you are setting aside enough in the budget for each category is to assess what the range of your monthly spending looks like across the year. If possible, set your utility expenses up on the provider’s budget program.
You'll also want to dial in on your average spending from month to month. Understanding how much you spend or save from one budgeted area to the next gives you a good idea of how you can keep your spending on track by planning ahead for the heavy spending months. For instance, November and December are most likely higher variable expense months than others because of the holidays, but if you can plan for that ahead of time, it's easier to stick to your budget.
Step 4: Figure Out Where You Can Cut Costs
If you're trying to learn how to do a simple family budget for the first time, there's a good chance you may overspend. Let's face it, we've all struggled with cash shortfalls or a disorganized budget. That's why this step is important. Even if you aren't overspending, finding opportunities where you can cut costs means you can move from covering your bills to saving for goals like a new vehicle, or a vacation, plus you can start building an emergency fund.
Step 5: Track Your Expenses
Learning how to set a family budget doesn't stop when you have a plan on paper. Budgets need to be managed from day to day and month to month, otherwise, you won't know if they are working. Sign up for ProFed's Online Banking to get started by tracking your outgoing expenses, and keeping a monthly tally to prevent overspending. If you do need extra funds for an unexpected expense, rearrange your budget by reducing your spend on entertainment or eating out for the month to cover the cost.
Budget Management Leads To Better Household Management
Tracking your budget and maintaining discipline with your spending can provide you with a big boost to your overall household organization and management beyond just controlling your cash flow. When you pay attention to all the money you spend, it's also easier to see when you have missed out on restocking necessities or treating yourself, and it's a lot easier to practice self-care and stress management when you know you can treat yourself because all your bills have been paid for the month.
Get organized today, and see how much easier paying your bills can be now that you have learned how to set a family budget. Learn more with ProFed.
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