Five Simple Steps for Creating a Family Budget

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I have always been a frugal person for the majority of my life and hate to pay full-price for anything so I’m always looking for the best deals, hence the reason I started Thrifty NW Mom 4 years ago. However, even though my husband and I are both frugal, we still struggled with money management for a number of years in our marriage because we didn’t have a good plan for how to deal with our finances.  Ever since we have been married, we’ve never had a two-income household, so we had a significant amount of debt from student loans and credit card debt in our struggle to survive on one income.  With my couponing skills and living a more frugal lifestyle the past 5 years, we definitely started to see progress in our goal to live on less and pay down our debt, but  it was still slow-going and finances were always a stress in our marriage. We didn’t have a well-thought out plan on how to deal with financial emergencies and how to be effective in paying down our debt. {Dare I admit that we didn’t even have a solid budget that we followed – we just tried to cut costs where ever we could, which wasn’t working without a set plan} It wasn’t until we took the 12 week Dave Ramsey Financial Peace Class that we finally had a solid plan on how to deal with everything from creating an Emergency Fund to paying down debt to saving for retirement.  {If you haven’t taken this, I HIGHLY recommend it to help you get control of your finances!}.  We learned so many wonderful tips and ways to manage our money, but the best tip we learned was how to effectively create a budget and stick to it.  I think this is the number one most important step that a couple or individual needs to take to make sense of their finances and have a real plan for how to achieve financial success. I read an interesting article, “Women and Money: Why You need to take control Now” and it talks about women being more involved in the finances in your family. I think that discussing finances and dealing with this on a regular basis really needs to be a joint decision between couples and not left up to just 1 person. It’s important for you both to be on the same page as to where your money is going and how to cut your spending and where you want to save. I truly believe that working together with my husband on our budget and finances together has helped to ease that financial stress that was put on our marriage and we are now completely debt-free (yippee!) thanks to having this set plan of how to deal with our finances.

Tips for Creating a Household Budget:

1. Track your Spending for 4 – 6 weeks

This is the most important way to start  figuring out your budget – you need to see how much money you’re actually spending every month. You’ll need to track your spending on all your bills (utilities, mortgage, car payments, school/college) and household spending (groceries, household items) as well as spending for dining, entertainment, gifts, fuel, medical, and more.  You can just use a simple notebook or create an Excel spreadsheet (whichever works best for you and your spouse) and just start writing down every little penny that  you spend. It’s very helpful to keep a small notebook in your purse or car so that you make sure you don’t forget about any of those small, inconsequential expenses, which add up over the month.  If you are not using a cash system, you can use a system like Mint.comto help you track your spending from your accounts, but you still need to account for all the cash purchases, which is where the notebook comes in handy. {Obviously there will be unexpected expenses that come up, but you want a good overall look at what your finances should look like on a regular basis.}

2. Create a list of monthly expenses 

Once you’ve tracked your spending, you are then ready to list out all of your expenses based on your spending information.  Figure out which expenses are set or fixed expenses that don’t vary too much (such as mortgage, cable/trash, car payments, etc). Then also list all the variable expenses like dining out, entertainment, gifts, etc. You can create this budget on paper listing all your expenses out or you can use an Easy Budget Calculator like the one above from Genworth Financial.  It’s important to look at the expenses from the angle of set/fixed expenses and the variable expenses where you have more control over reducing that budget. Don’t forget to think about those expenses that come up on a quarterly basis, too, just to have those written down so you don’t forget about those expenses and then have to come up with extra money last-minute and take from another area of your budget.

3. Have a plan and spend all your money in your budget {Zero Budget}

This is an important step that we learned – it’s not enough to have a budget to follow but you need to know where all of your money is going. This is called a Zero Budget – know where every penny is going to go before you even start the month and start spending.  You need to have very specific amounts that you will spend on groceries, gifts, dining out, and more. And if you end up not using it all that month, then you can decide whether to put it towards paying off debt, put into savings (having an Emergency fund is crucial!), a vacation fund, or whether you will put the extra back into the next month to make sure you don’t go over budget. Even if you don’t know exactly how much you will be paid (if your job is not a set rate), you can still set the budget based on your lowest amount that you should be paid and then have a plan with what you will do with the extra money if you earn more that month. Figure out where all of that extra money will go. Another important idea here is to start saving for upcoming expenses like Christmas, Birthday Gifts, etc – set aside money in your budget to go to those upcoming expense categories, so you won’t be caught later on having to take money from another area of your budget.

4. Start trimming your budget in as many areas as possible

This is the tricky part and why it’s so important to do this together as a couple. I’ll admit that in the beginning (and still at times) this can be a hard step of compromising with your spouse.  I am the main one who does the shopping in our family, so I would know what was realistic or not, but my husband was also challenging me that we needed to keep cutting the budget in areas that I was struggling with reducing. You need to figure out set amounts that you will spend on those variable areas of your budget. I think it’s easier in the beginning to be a little more generous (if possible) during the first month of your budget just to give you a little leeway as you learn to stick to a budget. After the first month, though, you really want to start looking at tightening that budget to see which areas you can start trimming & lowering to reduce your overall household budget.  If you are struggling to find ways to meet your grocery budget, then this could inspire you to maybe try eating out of the pantry for a week a month so you don’t have to go overbudget. Or maybe you cut out one night out a month to lower that dining out budget. But,

5. Review your budget regularly and update it

Your budget will definitely not be perfect the first month or even the first couple months. This is an ongoing process of meeting together with your spouse to figure out where you can trim the budget or where you might need to add a little more into the budget if you find it’s too hard to stick to the budget.  Even though it can be challenging to find ways to make the budget work and stick to it, I have found that it is less stressful because at least you know where you’re at at all times with your money and you know exactly where your money is going. When you don’t stick to a set budget, you wonder why you are still struggling to pay the bills and where all the money went. This is just a very general guide to setting up a budget but I hope it was helpful to give you some ideas of where to start. I’d love to hear any of your suggestions on what has worked well in your family for setting and sticking to a budget.

What are some tips you have for setting up a household budget?

Disclosure:  Information for this post is sourced from Genworth Financial in partnership with the SheHeard Influencer Network.  However, all opinions are my own.