28 March 2017

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Create a Family Budget Step By Step

Creating a family budget is an excellent habit to develop. Budgeting would help you to spend less, save more and unnecessary money loses such as late payments on utility bills, loans or credit cards. When advising the importance of making a budget, financial experts emphasize that the budget will give you control over your money and to a great extent!

Creating a family budget is not a tough task but it is a straight forward activity. It can be done by any individual at any time. The core of building a budget required you to document your current income and spending in a particular order to attain financial discipline and adjust your spending so that you will be in better financial footing. This article provides you an insight on how create and maintain your own family budgets.

Before moving to the next step, I would like to focus on the major advantages of having a family budget. This has been already discussed in my previous article even though, I prefer to re-write the points once again here:

-    Budgeting gives you control over your money to a great extent.
-    Keeps you focused on your financial goals
-    Makes you aware what is going on with your money
-    Helps you organize your spending and savings
-    Makes you decide things in advance
-    Enables you to save for expected and unexpected costs
-    Provides you with an early warning for potential financial problems
-    Helps you determine if you can take debt and how much
-    Enables you to produce extra money by avoiding late fees, penalties etc.
-    Budgeting also makes you to take control over your debts
-    Quality of your life and financial status would improve to great extend

Setting up your family budget

Being said, budgeting required you to document your income and expenditure for an identified period of time. You can use a convenient method such as using a pen and paper or an Excel sheet or any other methods comfortable to you to document the details. There are many free and easy online tools and apps are available for you to prepare and track your budget.

The income part

Any budget should have two sections. You can make it more upon your requirements but I prefer to keep the budget simple as possible. First column should be the income part.  In this section, you need to add all the identified income for a month. It can be anything but ensure this section should be intact with the details. Here is a sample income column to know this in a better way:

Table - 1
Above mentioned is a sample and that can be amended by adding or removing any other source of income you have.  Once you have finished this, you can start with the expense part.

The Expense Part

Once after you have completed by identifying and listing all your income for the month,  it is now the turn for identifying and listing all your monthly expenditures. Remember, there are enough possibilities to forget few expense details in this section. It is quiet natural. In order to deal with such unidentified expenses, the best practices are to allocate a percentage of funds under a title of ‘miscellaneous expenses’. 

Here is how you can identify and list your family expenses for a month:

-    Always list your regular essentials such as food items, grocery expenses etc.
-    Document your regular monthly expenses such as electricity, gas etc.
-    Input your home expenses such as rent, appliances, maintenance etc. You can add all the maintenance expenses for home, appliances in this section.
-    Transportation and the vehicle maintenance cost would be added in this section
-    Have a section for Loan and debt repayments such as vehicle, home loan, personal loans etc..
-    You need to have a section for kids and their expenses like schools fees, babysitting etc.
-    Personal expenses need to be added and it may vary. These expenses can later be adjusted if required.
-    Savings and investments needs to be added in the investment section.
-    You need to set an emergency fund aside to meet any expenses that have forgotten to add in your budget but later required money to deal with.

To not miss any payments such as utilities, loans, credit cards, you can have a separate column with payment due date mentioned. This would make sure you are not missing any last date and inviting any penalty or interest hike due to late payments. Below is a sample expense sheet you can find.

Below is a sample expense details you can refer.  However, there are several columns that are optional to person to person. You can take this as a model to prepare your own list by providing actual expenses you have in each section.


Once done your own budgeting, you will have information on total income as well as expenses. There few points to remember:

1.    Deducting your expenses from the total income would give you either excess money in your hand or more money required to meet the expenses.
2.    If you have excess money, you can plan what needs to be done with that money. It can either add to the saving or can be utilized for better purposes such as paying out your loans, debts etc.
3.    If your expenses are more than your income, identify the areas where you can do necessary changes to reduce your expenses.

What is next?

Creating a budget itself would not provide you required financial safety. There are still few necessary homework remaining to do.

1.    Each week, you have to add the expenses happened over each item to understand how much you are actually spending against the budgeted amount. If the expense is higher than the planned amount of any item, necessary action needs to be taken to trim unnecessary expense.
2.    If any expenses are fixed during the budget preparation and there was a hike in pay later, allocation in budget also needs to be adjusted accordingly. Loan payments, utility bills are the best examples for this scenario.
3.    Never think any post budgeting balance amount in your hand is ‘free spending money’. But such balances should definitely go to savings and investments for future. Requirement of budgeting itself to save money by taking necessary controls and there is no ‘free money’ term in budgeting. Each and every penny in your hand should be allocated for good purposes.

You may find there would be some missing points in the above article and if so, please let me know the same.