How To Create a Family Budget in 6 Simple Steps

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Creating a family budget might sound overwhelming but it doesn’t have to be. By breaking it down into clear steps, you can take control of your finances and make sure your income covers your needs, savings and even a little fun. Here’s how to create a family budget without the stress.

Quick Guide: How To Create a Family Budget

1. Add up your household income. Include all sources of take-home pay.
2. List your monthly expenses. Group them into clear categories.
3. Set savings and spending goals. Focus on what matters most.
4. Pick a budgeting method. Choose a system that fits your family.
5. Track and adjust. Review spending monthly and make changes.
6. Prioritize savings. Always build in savings and emergency funds.

Step 1: Calculate Your Total Household Income

An effective family budget starts with tracking your income, or how much you make per month. Most people find it easiest to create a monthly budget, since most bills — including mortgage, credit cards and car loans — are due monthly.

Here are some key points to know:

• Make sure to include all sources, including W-2 salaries for yourself and your spouse.
• Your income should also include freelance work or side gigs, tips and child support.
• Base your income on your take-home pay or “net” income, which means after taxes are taken out.
• Freelancers and independent contractors might want to set aside 20% to 30% of their pay to cover taxes. That money shouldn’t count toward your household budget.

Pro Tip

If your income varies from month to month, average your earnings from the past three to twelve months to get a more accurate number for your budget.

Step 2: List and Categorize All Family Expenses

Tracking income is the simple part of creating a family budget. Now it’s time to categorize all your expenses. Expenses can be categorized as fixed or variable.

• Fixed expenses: Stay the same each month.
• Variable expenses: Fluctuate based on usage and choices.
  • Variable costs often depend on lifestyle habits. Here’s an example:
    • You may spend more on entertainment in the summer.
    • In the winter, you may stay home more and spend less on outings.

Fixed expenses include:

• Housing payments such as rent, mortgage, HOA fees, home insurance
• Cell phone and home internet
• Childcare or school costs
• Car payment
• Auto loans
• Car insurance
• Life insurance

Variable expenses include:

• Water and electric
• Gas
• Groceries
• Dining out
• Entertainment
• Clothing
• Household goods
• Subscriptions

Consider This

Review bank and credit card statements to catch all your spending.

It might be useful to look back a few months and take the average amount for variable expenses.

Step 3: Set Family Financial Goals

Now budgeting gets interesting — and fun! Talk with your family and decide on long- and short-term goals.

• Short-term goals could be paying off high-interest debt, saving for a vacation or saving for a new car or home remodel.
• Long-term goals include saving for college and retirement.
• If you don’t have three to six months of emergency savings set aside, make that a mid-term goal.

Goals should be “SMART”: Specific, measurable, achievable, relevant and time-bound. That is, you’ll have a set date to save a specific amount of money and you’ll know when you achieved it. The goal should be possible given your family’s financial means.

Now, evaluate your budgeting priorities in alignment with these goals. For instance, if a mid-term goal involves paying down high-interest debt, look at ways you can reduce variable expenses.

Step 4: Choose a Budgeting Method That Works for Your Family

There are several different budgeting methods you can choose. You can also combine these methods to find a budgeting strategy that works for you.

50/30/20 Rule

The 50/30/20 rule recommends breaking your income into the following categories:

• Needs: 50% of your income
• Wants: 30% of income
• Savings: 20% of income

That’s not always possible in expensive areas of the U.S., where 50% of your income may cover housing, without leaving any left over for other necessities. If that’s the case, you can adjust these figures to 70/20/10.

With the 70/20/10 rule, you breakdown your income in the following way:

• Living expenses: 70% of income
• Debt repayment or savings: 20% of income
• Investments and charitable donations: 10% of income

This structure provides more flexibility for those with high housing costs.

Zero-Based Budgeting

In zero-based budgeting, every dollar has a purpose when you start the month.

You would use your projected income for that month and give every dollar a job, allocating money to different areas.

Money left over at the end of the month can get rolled over into savings, shifted to a different category, or rolled into the next pay period.

Envelope or Cash-Stuffing Method

This method is a highly visual way to approach zero-based budgeting. With the envelope method, you use literal paper envelopes or virtual envelopes within your budgeting app to allocate funds to different spending areas.

Budget Apps

Apps like YNAB, EveryDollar and GoodBudget all use zero-based budgeting to help you track your money digitally and on the go.

Maybe your ideal budget method is a mix of all of these. Try one for a month, see what works and adjust as needed.

The goal of a budget is to track your income and spending to ensure that your money choices are moving you toward your financial goals.

Step 5: Track Spending and Adjust Monthly

You might find that creating your family budget is easy. Now it’s time to stick with it and make adjustments that fit your lifestyle.

Here are some tips that might help:

• Set a “money date.” This is a weekly or monthly check-in with your spouse and older children where you review how you’re doing.
• If you notice you overspent during the meeting, decide if that category needs more money, or if you need to cut back spending.
• If you’re using a spreadsheet or printable worksheet, have this on hand for everyone to review.
• If you’re using a budgeting app, consider streaming your phone screen to a smart TV in your family room so everyone can see the budget up close.

Good To Know

It’s common to go over budget in months like May and June due to prom expenses, graduation gifts and family celebrations.

Occasional overages like these may not require long-term budget adjustments — just plan for them when you can.

Step 6: Build in Savings and Emergency Funds

More than half of Americans polled said they wouldn’t be able to handle an emergency expense over $2,500, based on a recent poll from Discover. Consider these points when setting savings goals:

• If you’re just getting started saving, $2,500 might be a good goal, since it would cover the cost of a major appliance breaking down.
• Ideally, your goal should be to set aside three to six months of living expenses in an easy-to-access emergency fund.
• Make that 12 months if you have an unstable career or run a business.

Don’t forget long-term and short-term savings:

• Once your emergency fund is solid, direct extra savings toward long-term investments.
• Short-term savings are also important for family goals like vacations, new cars and college.

Saving money doesn’t have to be hard — you can automate the process.

• Set up automatic transfers to your savings account from every deposit.
• Use “round-up” features some banks offer, which move spare change from purchases into savings.
• Always compare high-yield savings accounts to get the best rates.

Sample Family Budget Template

Use this template to compare your planned expenses with what you actually spend each month — and spot where you can adjust.

4 Tools and Apps To Help With Budgeting

When you’re creating your family budget, you don’t have to go it alone. If you wish, you can enlist the help of a financial advisor or a financial counselor who can help you explore your money mindset.

You can also lean on technology to help you easily create and, most importantly, maintain your family budget. After all, it’s relatively easy to create a family budget. Sticking with it is often the challenge.

These apps put your budget at your fingertips so you can track your spending on the go and stay on track.

YNAB

Widely hailed as one of the best budgeting apps available, YNAB uses the zero-based budgeting technique to help users save hundreds per month.

The only drawback? An annual fee of $99 or $14.99 if paid monthly.

GoodBudget

If you want to try the envelope method of budgeting, GoodBudget is worth a look. GoodBudget divides your money into virtual envelopes so you can easily track spending.

The basic version is free but you’ll need to pay $10 per month or $80 annually to sync with your U.S.-based bank account.  

Spreadsheets

If you’re looking for a free option to track your budget, Google Sheets or Microsoft Excel can fit your needs.

Printable Family Budget Planner

Are you a tactile person who still wants to use pen and paper? A handwritten budget has worked for families for hundreds of years.

You can find printable family budget planners on Amazon, Etsy or even for free if you’re willing to search a bit.

Final Takeaway: Budgeting Brings Stability and Confidence

Knowing how to create a family budget gives you clarity and control over your money. It takes the guesswork out of wondering if you can afford a splurge or a major purchase.

Even if you run the numbers and realize your income doesn’t cover your bills, you have opportunities to reduce expenses or find an additional source of income. A budget gives you a starting point for better money management. But it’s a process.

Stay consistent with tracking your income and expenses, remember to shuttle a little into savings every month, and you’ll look back in a year and realize you feel more in control of your money.

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