The Simple Guide to Creating an Effective Family Budget

Taking care of your family means addressing a number of financial challenges including housing, purchasing food, and utilities and other monthly bills.
Family Budget Guide

Keeping track of these constantly changing expenses is often the biggest challenge of all—transitioning from daycare to childhood costs to contributing to college, trade school, or moving out costs isn’t easy!

The answer is a family budget. A family budget generally has more categories than a personal budget (and often multiple incomes), but its purpose is the same: to help your family successfully manage its money so you never miss a bill, or risk debt in the case of an emergency.

In our family budget guide, we’ll dive into what a family budget is and tell you how you can create the best one for your family. Keep reading to learn more.

What is a family budget?

A family budget is a system that shows how your money (aka your income) is distributed between different expenses, like rent, car payments, and credit card payments. Your money is divided into different “buckets,” or categories, including income and expenses. The goal of a family budget is to help you spend less than you earn.

So how is a family budget different from an individual or a couple’s budget? Family budgets are frequently more complex, because they often involve a larger number of both fixed and variable expenses. In particular, variable expenses like medical bills, back-to-school costs, diapers, daycare, formula, sports equipment and the like can be difficult to predict.

Your family budget categories will also depend on the age of your family and the income you have coming in. If your kids are still infants or toddlers, you’re going to be more interested in paying for diapers and formula than budgeting for the appetites of teenage boys, pet costs, or textbooks. Your budget evolves as your family grows!

Why should you have a family budget?

Whether you have three family members, four, or more (consider everyone who’s depending on your income including children out of the home, adult depends, etc.), creating a budget will help your entire family succeed financially.

Here are a few reasons creating a family budget is necessary (and awesome). A family budget

  • guides how much your family can spend each month to help prevent debt;
  • teaches all family members the value of money;
  • helps you to save for future major expenses;
  • provides an overall view of how much debt your family has and how that debt is impacting your collective financial future; and
  • helps keep your family finances prepared for an emergency.

In other words, a family budget is a key strategy to ensure that your household is financially healthy — now and in the future.

Things to consider when setting up your family budget

Before we dive into creating your family budget, it’s worth understanding the elements you should include.

According to The Economic Policy Institute, family budgets typically have seven components: housing, food, child care, transportation, health care, other necessities (e.g., clothing and entertainment), and taxes. We can organize these components further into four categories:

  • Fixed expenses: These expenses include items that cost the same every month — the amounts remain stable, so you know exactly how much of your and your partner’s paychecks you need to put toward these expenses (e.g., mortgage/rent, car payment).
  • Variable expenses: Variable expenses (e.g., groceries, utilities) fluctuate month to month. For example, your family heating bills are probably a lot higher in January than in July. (Learn more about funding your Expenses in your Simple Account here!)
  • Debt: Debt can be anything from credit card balances to student loans. An effective budget will help you figure out how to pay off any shared debt (and avoid any debt that your kids might be saddled with later on).
  • Goals: Your family’s financial goals should be the North Star for your budgeting decisions. These can be short-term and long-term goals, such as “Save $300 for emergencies over six months” or “Pay off the car loan in two years.” Setting up Goals in your Simple account can help you to stay on track to achieve these financial milestones.

All of these categories are important to keep in mind as you prepare to build your budget. Also take a moment to identify any categories that may be unique to you (ie costs associated with a past marriage, taking care of aging parents, etc.).

Budget management options

Sticking to a budget can be a huge challenge. But guess what? Budgeting experts have come up with a number of methods (that can be used alone or all together) to make managing your budget a lot easier. Here are three popular family budget systems:

  • Cash-envelope system: With this budget, you split your income by bills and everyday expenses. Once you’ve paid your bills, you take any leftover money (in cash) and divide it into envelopes labeled for different expenses, such as “Groceries” and “Spending Money.” These can be virtual envelops (like in your Simple Account) or real envelopes with cash.
  • Zero-based budget: “Give every dollar a job” is the mantra behind this budget type. With this strategy, your income minus your expenses and savings should always equal “zero.”
  • 50/30/20 budget: With this budget, you and your partner ideally take your paychecks and split them 50/30/20: 50% of your dual incomes go toward “Needs” (e.g., rent), 30% goes toward “Wants” (e.g., family restaurant night), and 20% goes toward “Savings & Debt” (e.g., paying down credit card balances).

Each of these approaches gives you a way to tackle budget management and can make it much easier to accomplish your financial goals, especially if you use them together. For example, using the cash-envelope system can make it easier to stick to the zero-based budget, ensuring that all your money is working as hard as possible for you, while the 50/30/20 budget provides a framework for knowing exactly how to allocate your shared income between envelopes.

How to create a household budget

Now that you know the basics, are you ready to create your own? Before you panic, remember, it’s not complicated. Repeat: It’s not complicated (or at least it doesn’t have to be). A family budget simply helps you keep up with how much money you’re bringing in each month and how much you’re spending—it should be as complex or simple as you can manage to cover your family’s needs.

As you work on your budget, keep your specific family situation at the forefront of your mind. Every family is structured a bit differently and has its own major variable expenses, like shared custody costs, care of an aging parent or other adult dependent, or a chronic medical issue. It’s important to build these recurring expenses into your budget from the beginning so that you can come up with an accurate overview and don’t have to rebuild the entire thing later.

You can break down building a family budget into the following simple steps:

Step 1: Look at your family income.

The first step is establishing income—knowing how much your family earns on a monthly basis. Log into your bank account. Look at how much money you and your partner bring in, and list reliable monthly income (aka what you definitely expect to earn each month).

This can be paychecks from full-time jobs and earnings from side hustles (e.g., maybe you sell items on Etsy) as well as earnings from part-time jobs. If you or your partner have irregular income, no worries. Come up with averages or income estimates for the month. You can adjust on a month-to-month basis.

Step 2: Tally up your household expenses.

Remember fixed and variable expenses? This step needs a lot of attention for a family budget (mainly because there are so many potential expenses). First, look at your fixed household expenses (i.e., the expenses that don’t normally change). For a family, these might include the following:

  • Rent
  • Car payments
  • Insurance premiums
  • Credit card payments

Then, look at your bank statements to see how much you spent last month on variable expenses — things like groceries, medications, electricity (the kids forgot to turn off lights again), diapers (if you have a baby), and transportation costs.

Last but not least, calculate your “discretionary spending” — this is the spending that’s not entirely necessary but makes life a little brighter, like taking the fam to the movies or going out to eat together (in your Simple Account, this will be your Safe-to-Spend). With all of your expenses, write down the item/service and the dollar amount.

Step 3: Calculate your net income.

Okay, time to see how your family is currently doing financially so you can determine your budgeting strategy. All you have to do is subtract the total monthly expenses you calculated in the last step from your take-home pay total. The result is your net income.

If the number is positive, that’s good news. It means you’re spending less than you earn. The money that’s leftover could be put toward savings or debt.

If the number is negative, your family is spending more than it makes. While definitely not ideal, it’s fixable (and something your budget can help you with!). Your family needs to reduce its expenses and increase income, if possible. Debt payoff strategies will also be important.

Hint: Open a joint checking account with your partner helps to manage your dual incomes and expenses.

Step 4: Make a list of family financial goals.

Now that you’ve looked at your income and understand your current expenses, you can set realistic short- and long-term goals and get a clear grasp on how long it’ll take to achieve those goals.

Think about where you and your partner want to be financially in a year. How about in five years? Ten years? Here are a few examples of family financial goals to get your wheels turning:

  • Short-term goal: “Pay off all of our credit card debt in two years” or “Build a family emergency fund in 6 months.”
  • Long-term goal: “Pay for our child’s college tuition in 14 years” or “Save for our retirement in 30 years.”

Sit down with your partner (and maybe your kids!) and write down three to five financial goals that you want to achieve for your family’s future. By knowing what you want to achieve and why, you and your family will be more likely to stick with your budget.

Step 5: Figure out where you can cut back.

Here’s the thing: Overspending makes it hard for your family to save and hit your financial goals. And, normally, families don’t even realize which expenses are draining money away without improving your quality of life (like that gym membership you forgot you had!). A family budget helps you identify and eliminate those losses and makes it easier for your family to live within your means.

To cut back, first take a hard look at your discretionary expenses. Could you stop spending $50 to go the theatre with the family every month and instead have an at-home family movie night? Or could you cut back on your restaurant bills with more family meals at home? Talk with your partner and kids about spending areas that may cost too much.

Also look at fixed and variable costs to see if there are areas where you can cut costs. You can likely cut back on fixed expenses like utilities, phone bills, or internet service. For instance, perhaps call your internet provider and ask for promotional deals. Or, for variable expenses, take a hard look at things like your family grocery bill. It might be a good time to check Pinterest for budget-friendly family meal ideas.

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Step 6: Determine a debt payoff plan.

Whether you have a positive or a negative net income, your family probably is bringing some debt to the table. In fact, according to ValuePenguin, in April 2020 the average American family was in debt to the tune of $5,700. The most common type of debt for families is mortgage debt and credit card debt. While debt isn’t always a bad thing, it’s normally best to pay off what you have as quickly as you can.

Sit down with your partner and determine how much debt you have. List the type, amount, and interest rate. Figure out your debt payoff plan, such as the debt snowball or the debt avalanche method. The amount of money that you decide to put towards debt each month will go in your family budget as a line-item (think of it as another expense to pay each month).

Step 7: Plug this information into a manual or digital budgeting tool.

Now for the fun part. Take your dual incomes and how much your family can realistically put toward expenses each month (as well as toward debt and savings). Insert this information into a budgeting system, such as a notebook, a Google Sheet template, family budgeting software (or your Simple Account!) — since this makes your budgeting process automatic.

Repeat this process every month with your partner (set a specific date and time, if it helps). Once you’ve set up the framework, all you have to do is track your expenses. Compare the amount that you budgeted with how much your family spent. You can then see whether you’re on target with your spending and whether you can put even more money toward savings or debt.

Don’t freak out if your family budget isn’t right on track every month or if you need to allocate more money to one category over another. The great thing about a budget is that it’s a living tool. It’s meant to change and grow right along with your family. For example, you can easily add another line item to cover that new baby (and congratulations!).

Create a budget that works for your family

Building a family budget might seem daunting at first, especially when you’re just trying to survive your family’s everyday chaos (just kidding, but really). And it’s true that there’s definitely a lot to think about in terms of expenses and even figuring out what kind of goals to set.

Have serious conversations early on when creating your family budget. It takes a bit of up-front work, but the results will be worth it for years to come.

A Simple Account has your banking and your family budgeting tools all rolled into one. You can easily organize your income and expenses, set up goals, and track spending — and it’s all built right into your Shared Account (and your individual Simple Accounts) for easy family budget management. Learn more about budgeting with Simple here.

Get 12 more tips for putting together your family's budget!
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