Managing finances while taking care of your family can be hard work, but it doesn’t have to be. Whether you need money for school fees, have to pay off your mortgage, or want to find out where you’re spending all your hard-earned cash, creating a family budget can help you do so. By using a budget you’ll be able to set your financial priorities straight and balance your saving and spending habits, helping to make family life more relaxed. So, if you’re looking to get the most out of your money, here are some tips for budgeting your family income.

The importance of budgeting

Budgeting ensures you always have money to pay for the things you both need and want. This includes essential expenses like utility bills, non-essential expenses like entertainment, and unexpected expenses like medical bills.

When you have a budget, you’ll know exactly how much money you earn, how much you can afford to spend, and how much you need to save. Sticking to your budget will help you avoid debt, or get out of debt if you’re currently in it.

Budgeting also helps you create savings goals, keep track of your progress, and eventually meet your goals. What’s more, a budget sheds light on any bad spending habits. For example, if you have 20 pairs of black shoes but only ever wear two, budgeting will help you rethink your spending priorities and refocus your financial goals.

Most importantly, budgeting helps you prepare for the unexpected. If you budget for an emergency fund that’s worth three to six months of living expenses, this will ensure you don’t fall into debt if you ever lose your job, become seriously ill or injured, have a death in the family, or so on.

How to create a family budget

With this is mind, here we offer you some tips on creating a budget for your family.

Choose a budgeting system

There are three main methods you can use to create, track, and monitor your budget:

• Notebook and pen – This is the cheapest option, and all you have to do is write down all your sources of income and expenses.
• Spreadsheet – Microsoft Excel allows you to easily organise a lot of information and does the math for you.
• Online budget planner – A good example is Mint. This lets you group your expenses into categories and track your spending so you can easily see where your money’s going. You should also consider using MoneySmart’s budget planner.

Calculate and compare your income and expenses

You can choose to calculate your income and expenses on a weekly, fortnightly, or monthly basis. Make a list of all your income sources, including your after-tax salary, bonuses, and child support payments. Then make a list of your expenses, including essential expenses (for example, rent, mortgage, groceries and utility bills) and non-essential expenses (for example, recreation and entertainment). You can look over your pay slips, bills, receipts, and bank statements to determine the amounts.

Next, compare your expenses against the family income. You should subtract the total sum of your expenses from the total sum of your family income. If you’re spending more than what’s earned and aren’t making any significant savings, you may need to consider cutting back on your expenses or getting a side job to increase your income.

Set financial goals

Now you know how much you earn and spend, set some financial goals to help you stick to your budget. Short-term financial goals include paying off the mortgage, car loan and utility bills, and paying for the kids’ education, food, and household supplies. Secondary short-term goals may be saving for a night dining out or going on a family holiday. Long-term goals generally include saving for retirement and making investments.

Balance your spending and saving

Once you’ve set your goals, it’s time to balance your spending and saving. If you spend more than you earn, you should reduce your expenses. For example, you can walk or carpool instead of driving your car, make food at home instead of eating out, and use cash instead of credit cards. You can also switch to cheaper options for memberships or subscriptions, mobile phone or Internet plans, insurance, and super funds. Additionally, you may want to get a side job or sell any possessions you don’t need to make extra money.

When it comes to spending money, you should spend less on your family’s wants (non-essentials) than on their needs (essentials). For instance, try to reduce the amount of times you go to the cinema and don’t buy a new pair of shoes unless you need them.

When you receive your pay cheque, you should set aside some money for both your expenses and savings. You should also build an emergency fund worth three to six months of living expenses for a rainy day. Once your family’s expenses no longer exceed your income, you can start saving more and achieve your financial goals.

What are budget ratios?

Budget ratios are percentage breakdowns of your income that should be assigned to living expenses, investments, and savings. The 50/20/30 rule is a good example, where your income is distributed to three main categories:

• 50% of your income goes to fixed costs that stay the same on a monthly basis, for example, rent, mortgage, car payments, and cable bills.
• 30% of your income goes to variable costs that change on a monthly basis, for example, groceries, clothes, and entertainment.
• 20% of your income goes to savings.

The 50/20/30 rule not only makes it easier to track your budget, but it also gives you some flexibility as have the ability to pay for your expenses and save money at the same time.

You can adjust the ratio to suit your goals or to make it more specific. For example, you can allocate:

• 35% of your income to housing expenses, for example, rent or mortgage, home or renter’s insurance, property tax, utility bills, and home repairs and maintenance.
• 20% of your income to transportation expenses, for example, car payments, insurance, petrol, taxes, tolls, parking, car repairs and maintenance, and public transport.
• 20% of your income to general living expenses, for example, health expenses, day/after-school care for children, groceries, clothes, entertainment, dining out, holidays, memberships, and subscriptions.
• 15% of your income to debt payments, for example, credit cards, student loans, and home equity line payments.
• 10% of your income to savings goals, for example, emergency fund, special projects, and retirement.

Need help with your budget?

Creating a family budget and sticking to it can be a challenge, but the rewards are worth the effort. By following these budgeting tips you’ll be able to control your spending and save money for the future.

When creating your budget, if you find that you don’t have enough money to pay off an expense, SRG Finance can assist you with a personal loan. Find out more about applying for our products by contacting us today.