Families have a variety of reasons to create a financial budget for a household, including to better understand spending habits, restrain spending and save for desired purchases, such as a new car or vacation. Independent contractors who pay quarterly taxes may also want to ensure they save enough money to pay their estimated taxes as they come due. You can use one of several methods to create guidelines for a family budget, including formulas based on income, fixed expenses or savings goals.
Step 1
Discuss with those responsible for the family's finances the need and goals for a budget. These persons may include live-in parents, elder children or boarding relatives. Adjust goals until you create a set by which all will agree to abide.
Step 2
Calculate your expected income for the coming year. This should include all wages, salaries, tips, dividends, interest, gifts, loans, money from yard sales and other sources. Divide this number by 12 to get your expected, average monthly income. Some financial planners recommend using percentages of income to set guidelines for specific spending. For example, E. Kim Dignum, a certified financial planner with Dignum Financial Planners, recommend limiting the amount you spend on housing and debt repayment to 30 percent of your income or less.
Step 3
Write a list of your expected monthly expenses, including such items as groceries, tuition, utilities, car payments, credit card payments and other recurring expenses. Divide these items into two lists, fixed and variable expenses. Calculate an average monthly number for your variable expenses to help plan a monthly budget.
Step 4
Write a list of expenses that will occur only once or several times per year and the months in which they will come due. This might include semi-annual auto insurance premiums, quarterly taxes or annual vacation. Divide these numbers by 12 to help guide monthly savings to help you make these payments. For example, during months when you have more income than expenses, family members will have to agree to save a certain amount of your income for those months to pay bills during months when expenses exceed income.
Step 5
Compare your income to your expenses, ,annually and monthly. Use these numbers to create guidelines for spending and savings. You can create guidelines based on how to save or spend your extra income, or use guidelines that restrict spending if you anticipate a shortfall. For example, if your annual expected income is greater than your expected expenses, set guidelines for using the largesse, such as paying down credit cards, saving for a vacation or contributing to a retirement or tuition plan. If your annual expenses will be greater than your income, set guidelines for spending on variable items, such as groceries, clothing, entertainment, cable, children's cell phones, dining and other optional items.
Step 6
Write or create using software, an annual budget, including income and expense guidelines for each month. Leave cells or boxes for budgeted numbers, actual amounts paid and the difference between each. Let these numbers guide you in your spending and savings, making adjustments each month, if necessary.
Step 7
Review the budget with key members of the family and discuss whether or not each person can live by the budget. After this discussion, revise your original budget, recommends the Better Business Bureau, to create a more accurate set of spending guidelines.
Step 8
Share the budget with everyone in the household, especially those who have access to family money and make expenditures. Make sure they know why you have created a budget, guidelines for savings and spending, and how their participation will affect the budget.
Things You'll Need
- Expected annual income
- Expected monthly and annual expenses
- Budget software or paper and pencil
- Calculator
Member Comments