Creating a family budget and managing it together can be an incredibly fun and rewarding activity. A family budget is a financial plan that helps you understand and manage your family's income and expenses. A family budget helps families to identify their financial priorities and provides guidelines to follow when making decisions about how best to allocate their resources. By utilizing a family budget, families are able to optimize their finances by allocating funds towards long-term investments or other important objectives while still allowing for everyday needs and wants.
Read More: How To Budget: Everything You Need To Know
Many families are terrible at managing money. They don't talk about it openly, they spend in secret, they have separate bank accounts, and they fight about it all. Fights about money remains one of the leading causes of divorce. Yes, a household budget can improve your family finances and help you get a handle on your monthly expenses, but I believe the biggest benefit of family budgets is the way budgeting together can improve communication, build unity, and create a road map to your family's financial success. Most of all, budgeting together will nurture and grow relationships with the people you care most about. As you involve your family in creating a budget, you'll learn more about each other and grow closer. Families who budget together stay together!
But how can you entice your family to join you and create a family budget? One way to make budgeting more appealing is to focus on the end goal. Explain to your family how having a detailed budget can help them save up for special purchases, plan ahead for household expenses, or even put money away towards retirement savings. Show them how budgeting now will lead to greater financial stability in the future.
In addition, consider setting short-term goals that are attainable within a few months or a year. This could be something like reducing eating out costs by 20% over the next six months, paying off a certain amount of debt within one year, funding a child's college savings, or saving money for a family vacation. Having these milestones will give everyone something to work towards collectively as a family and provide motivation to remain on track with their budget plans.
Establishing a budget isn't about curbing all spending habits – it's about balancing priorities and working together as a team towards achieving common goals. Instead of viewing it as an oppressive exercise or chore, think of it as an opportunity to grow closer as a family while learning valuable skills related to managing finances responsibly.
This will depend on what your family looks like. At a minimum invite your spouse or partner to participate in the budgeting process. How much you involve your children will depend on their age, maturity, and how transparent you want to be about your bank statements, account information, and other financial information. Keep in mind that teaching children to budget is one of the best things you can do for their future. It will put them into the small minority of people who manage money well and achieve their financial goals.
The best tool for budgeting with partners, children, mothers, fathers, caregivers, roommates, etc. is You Need A Budget (YNAB). For the price of a single subscription, a YNAB user can invite up to 5 other people to their group, where they can manage individual and shared budgets, all in the same account.
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Or, you can use a spreadsheet. It's your funeral. Or, rather, the funeral of your family's budgeting dreams. In all seriousness, using a dedicated budgeting app like YNAB makes it so easy to collaborate on your family's financial goals, track household spending, and get on the same page about money that once you've tried it, you won't want to go back to anything else.
You can get my free YNAB setup course "The Budget Guide" by filling out the form below. It will walk you through setting up YNAB in detail and includes video walk-throughs.
The first step to creating a family budget is to list out all of your expenses. Start with fixed expenses like rent, mortgage, car payments, health insurance, debt repayment, student loan interest, and so on. Then move on to variable expenses like transportation costs and utility bills.
Once you've listed all of your monthly obligations, it's time to decide what your family wants to do with the extra money. This is an important part of your spending plan. What are your family goals? Are you trying to pay down debt? Do you want to pay more than the minimum payment on a certain loan? What about family recreation? You don't need more money to spend time together, but you do need money for things like family vacations. What are your saving goals? Is it important to have an emergency fund? If so, how much money would you like to be in it? What about a college fund? What about menu planning? Or do you want to eat out more? What other expenses haven't you considered? Counsel together as a family to identify everything you think you might want to spend money on.
Read my article about things to save up for to make your life better.
Now that you've identified all of your potential budget categories, it's time to start giving every dollar a job. Start by taking the total amount of money you have available and divide it up among your budget categories. You should be able to see how much money you can realistically spend in each category. You might not have enough money to fully fund every category. That is ok! Use this as an opportunity to learn about each family member's priorities and decide together how to proceed. Maybe a far away family vacation is not as important as saving for college and you decide to have more board game nights instead.
By now you should have a list of all your budget categories, and a dollar amount in each category. Your financial planning for the month is complete! Now it is time to track spending. Using YNAB Together, every family member can record their spending in the mobile app or on the web app. Or, you can have separate budgets within your account for children, where they make their own budgets based on allowance or their own income. Encourage everyone to check the budget before they make purchases and record their transactions.
At a frequency of your choosing, get together as a family to discuss how your budget is working. Did you allocate enough money to everyone's discretionary spending? Are you saving enough to meet your goals and spending enough that you don't feel restricted? Where did you over spend? Where do you have money left over? What do you want to add, remove, or keep in your budget next month? Make sure to guide the discussion in terms of priorities, choices, and how spending money on certain things made people feel. Adjust your budget accordingly and create a family budget for the next month.
There is no such thing as a normal family budget. Wants, needs, and goals vary family by family.
A good family budget is one that aligns with your family's specific priorities and provides flexibility enough flexibility to adapt when plans change. A realistic budget has personal spending categories that each family member can spend from without asking permission from others.
The 4 simple rules for budgeting are (1) give every dollar a job, (2) embrace your true expenses, (3) roll with the punches, and (4) age your money. You can learn more about these rules by watching the 7 best YNAB tutorials.
The 50/30/20 Rule of Money is a personal finance rule that splits an individual’s after-tax income into three categories, with each category receiving a certain percentage of the total amount: 50% for needs, 30% for wants, and 20% for savings. I wrote an article about the 50/30/20 rule that explains this in more detail.
Most financial experts recommend that an emergency fund have enough money to cover 3 to 6 months of expenses or enough to replace your income for the same period of time. Keep this money in a bank account where you can easily access it.
Read my article about whether you could benefit from working with a budget coach. Or schedule a time to meet for a complimentary coaching session.
Disclosure: I am a YNAB Certified Budgeting Coach. I offer coaching services for those wanting to accelerate their financial progress. This article contains referral links to begin a free trial of YNAB. If you use one of these links to sign up for YNAB and choose to subscribe, we will both get an extra free month added to our subscriptions.