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A family budget is one of the most important financial tools you have when it comes to your money. Whether you are looking to control your spending or get out of debt, creating a budget will help you find your way. I know when most people hear the “B” word, their eyes glaze over. Let’s face it budgeting just sounds boring! In reality, you will find it to be enlightening and very beneficial.
1. Investigate Your Current Spending Habits
Before you can sit down to create an effective family budget you must know where your money has been going. Do you know how much you are spending on bills and other non-essential items each month?
Start by gathering together your previous month’s bank and credit card statements. They are full of a wealth of information and it will help you when determining where your money should be really going.
If you use cash and don’t remember where you spent it this step may be a little harder. You will need to move forward by documenting where it was spent. That will provide you with a better understanding of how much is being spent in each category. To help you get started quicker you can begin a budget with just a cash category, but you will want to eventually make that number smaller and smaller as the cash used is placed in the proper item area.
Once this information has been gathered you are ready to move onto step two of creating a family budget.
2. Compile an Income/Expense Report
Okay eyes don’t glaze over now, were just getting to the good part! An Income/Expense Report is just a fancy way of saying, how much money did you bring in during the month and how much is going out. Not so bad right?
On one side of a single piece of notebook paper write Income and Expense then draw a line down the middle. List every penny that has come into your home, including paychecks, child support, and any other reoccurring income earned under the income heading. Now list all the money going out under expenses. It’s really that simple.
This document is a reference for you and will help you quickly identify areas where you may be overspending. You may have thought you were only spending $30.00 eating out each week when in reality you are spending closer to $100.00! Once you know this information you will know how and where to make changes in your spending habits.
3. Categories For Your Family Budget
Take a second piece of notebook paper and on it make several headings. These headings should describe your monthly expenditures. You can be as general or as detailed as you wish with this, it really is up to you. Just make sure that your final report is something that you and your spouse can both agree to and understand.
I do however, recommend keeping your essential monthly payments separate from any group categories as it will make it easier to keep track of. Some basic category headings I recommend are: mortgage or rent payment, car payment, personal loan payment, student loan payment, credit cards, groceries (this includes pet food and all other household items), utilities, public transportation funds, entertainment and savings.
Once you have entered all of your expenses under their appropriate category, you need to total your expenditures so that you have an accurate representation of just where your money is going each month.
4. Create Your Family Budget
Now that you have gathered all of the essential information it’s time to create your families monthly budget. Begin by totaling your monthly income and subtracting your monthly expenses from that number. If you are handling your money wisely you should have either a zero balance or a little money left over at the end of each month. If however, you have a negative number then you have some more work to do.
The last step of creating a budget is to allocate money to each one of your monthly expenses. There are some things like mortgage, and car payments that are fixed expenses and won’t change month to month. Others like entertainment, and groceries are a bit more flexible and can help you create the wiggle room you may need.
Once you have budgeted for every category you can spend accordingly over the coming months. It’s important to keep in mind that your budget is a guide on how you should spend your hard earned money. It is only as restrictive as you want it to be. Using it in the right way means you have given every dollar a job to do and you should no longer wonder where it all went at the end of the month.
About the Author
Tennille, a freelance writer and a stay at home mom with two young boys lives in the Midwest. She is focused on becoming debt free, while raising a family on a single income. You can join her on her adventure at www.TwoKidsAndABudget.com.