A family budget helps you to control spending in your household. By cutting spending in some areas, your family will have "extra" money to pay down debt or to save for future expenses. It may seem intimidating to create and maintain a family budget but if you do so, your household will have a greater sense of peace about financial matters and you will show your children by example how to manage money wisely.
Step 1
For the next month, each member of the family should use his notebook to note each time he spends money. List the date, the time, the location, the amount spent, what items were purchased, whether cash, check or credit was used and the circumstances of the purchase.
For example, "Aug. 10, 11:30 a.m., gas station $25, gas and soda, credit card (no ATM nearby and needed fuel and beverage--it was a hot day)." Add up the totals for each day and each week, creating a subtotal for cash and credit card spending if necessary.
Step 2
At the end of the month, collect the notebooks and examine them as a family. Add up the monthly totals for each person and the monthly total for the family. Again, create a subtotal for cash and credit card spending.
Step 3
Make a list of other expenses: mortgage/rent, credit card balances, utilities, telephone, loans, subscriptions, insurance, taxes, child care and tuition.
Step 4
Add the totals from Steps 3 and 4. These are your total expenses.
Step 5
On another sheet of paper, add up all your income (wages, pension, alimony/child support, Social Security, investment dividends). This is your total income.
Step 6
Using the totals from Steps 4 and Step 5, subtract the smaller number from the bigger one. If your expenses are more than your income, this number is how much you overspend each month. If your income is more than your expenses, this is the amount you can save each month.
Step 7
Set a goal for what you wish to accomplish: Do you want to pay off your debt? Do you want to save for future expenses such as retirement or college? Do you want to save for a special trip or a new home or car? Do you simply want to have some savings in case of emergencies? Write your goals down on a sheet of paper.
Step 8
Based on the spending habits recorded in Steps 1 and 3 and the goals you've listed in Step 7, set reasonable spending limits for each spending category, such as gas, clothing, utilities, entertainment, groceries, clothing. Use your calendar to determine whether any unusual expenses are coming up within the next month (tuition, gift-giving occasions). Write down those limits and discuss them as a family. Are the limits reasonable? Are they too restrictive?
Step 9
Label one envelope for each of these categories: Groceries (food and household), entertainment, gifts, clothing and gas. Based on your spending limits in step 9, put enough cash in each envelope to meet that spending limit for the month.
Step 10
As the month progresses, family members may take money from the appropriate category as needed; however, once the envelope is empty, it will not be refilled until the end of the month. Each family member should continue to record their spending habits as they did in Step 1.
Step 11
Repeat these steps each month and discuss your spending habits as a family. Revise your budget as necessary to meet changing needs.
Tips and Warnings
- Many people find that the mere act of writing down each time they spend money results in less spending. Create a reward system to encourage keeping the notebooks: For example, the person who keeps the most accurate notebook gets to choose the television show to watch on the weekend.
- A budget is a plan that Is meant to change as the family's needs change. There may be times when the budget needs to be adjusted. Be gentle with those who exceed spending limits. Money management is a lifelong learning process.
Things You'll Need
- Small, pocket-size notebook for each member of the family who spends money regularly
- Pen or pencil
- Calendar
- Your financial records for the past six months (bank statements, payroll stubs, check register, credit card statements, mortgage and utility bills
- Paper and pencil or pen
- Box of envelopes
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