How to Develop a Family Budget

A family budget allows you to set and meet short- and long-term financial goals, better track your spending, help save for retirement or the kids’ college. A budget helps you 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 puts the money you have coming in toward paying your bills.

Start with income, then a list of expenses to create a budget

Review your Spending History

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.

Project your Income — All of It

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.

List your Expense Categories

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.

•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.

•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.

•Plan on keeping your housing expense to approximately 25 percent of your gross income, advise financial experts. Unless you have plenty of extra cash, don’t spend more than you have to on rent or mortgage.

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.

Create your Budget Document Using Averages

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 create a computer-generated budget using a variety of software programs, from generic spreadsheets to personal finance programs. Enter the average expense for things like groceries and gas to get a feel for what your situation will be for the year.

Create a Second, Cash-Flow Budget

In addition to projecting your average monthly spending, make sure you know your actual cash needs each month. 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 and July, rather than dividing the payment by 12 and putting the average monthly cost of your insurance in each of your monthly expense columns. 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.

Additional Resources

Better Business Bureau: Tips on How to Develop a Working Budget The Ideal Budget The Truth About Budgeting