A family budget allows you to set and meet short- and long-term financial goals, better track your spending, help save for retirement or children's college and otherwise manage your money in proactive ways, rather than living paycheck to paycheck. You can develop a budget that creates savings plans for vacations, college tuition or retirement, or one that simply apportions the money you have coming in to pay your bills.
Step 1
Gather copies of your bills and other financial records for the past 12-months, including utility bills, credit card statements, insurance premium notices, checkbooks and other records. You should collect all documents necessary to show you how much money you spent last year.
Step 2
Write down your revenue, dividing it into monthly and annual amounts. Include all sources of money you expect to receive during the course of the year, including work pay, interest on savings or investments, gifts, grants and loans. The Better Business Bureau recommends starting with your income to help you plan how much you can spend.
Step 3
Write down your annual expenses, starting with your monthly fixed expenses, such as rent or mortgage and auto payments. Estimate the average amount for other recurring monthly expenses, such as groceries, utilities, dining, credit card payments, child care, gasoline, cable. Over-budget on groceries, recommends personal finance expert and radio talk show host Dave Ramsey. Most people cut this category too close.
Step 4
Write down your semi-regular expenses, such as clothing purchases, car and health insurance, tuition payments, charitable donations, pet care, auto repairs and home appliance maintenance.
Step 5
Write down any miscellaneous expenses you may have during the next 12 months, such as a vacation, furniture purchases or legal fees. If you are an independent contractor and pay quarterly taxes, estimate your annual tax payment.
Step 6
Total your expenses per category for the year and divide by 12. This will give you your monthly average expenses. Total your annual income and divide by 12 to get your average monthly income. Subtract your average monthly expenses from your average monthly income. Use this number to determine if you will need to reduce your spending.
Step 7
Create a paper chart, computer spreadsheet or other tool that allows you to record your income and expenses in an easily readable format. You can rule a piece of blank paper, leaving room for headings down the side of the page, with the numbers to be entered each month running across the page. You can also create a computer-generated budget using a variety of software programs, from generic spreadsheet programs to personal finance programs.
Step 8
Enter your actual expected expenses for each month into a monthly column, not your average monthly expenses. For example, if you have a bi-annual insurance payment due in January, record the entire amount of the payment as an expense you must pay in January, rather than dividing the payment by six, and put the average monthly cost of your insurance in each of the next six months.
Enter your actual expected income for each month into the column next to the corresponding expense column. This will let you see which months you will have a surplus and which months you will fall short, allowing you save money during positive cashflow months to pay your bills during negative cashflow months.
Tips and Warnings
- Don't spend more than 30 percent of your budget on housing and debt, such as rent or mortgage and credit card payments, recommends certified financial planner E. Kim Dignum of Fort Worth, Texas.
Things You'll Need
- Personal financial records
- Computer software
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