7 Steps to Creating a Family Budget that Everyone will Help Keep
Budgets are the four-letter word of personal finance and tough to keep when it’s just one person trying to follow them. Add in two or three other people, all with different needs and goals, and the typical family budget lasts all of…about the time it took you to read this sentence.
But creating a family budget that works is critical to your finances and your sanity. According to Money Magazine, 80% of couples with children argue about money and people report money problems as one of the leading causes of divorce.
None of this means you cannot create a budget everyone can be happy with or that you have to be the only one that saves in your family. It does mean though, you’ll need a different approach to family budgeting.
Follow these seven steps to creating a family budget that get everyone pitching in and motivated to save.
Make YOUR Financial Goals OUR Financial Goals
One of the biggest problems with budgeting and saving is people just aren’t that motivated to save for their goals. Having a million dollars to retire on might sound nice but it’s this kind of vague goal that has people dropping their budget as soon as the next holiday-themed sale comes along.
That’s true for individual’s budgets and gets even more difficult for families. An added challenge for families is that goals for one person may not be important for another. When everyone’s goals compete, nobody is motivated to save and nobody wins.
Instead, talk about what everyone wants to do with the family’s savings. Talk about those big goals like retirement, education, buying a house, family vacations and those bucket list items. Create a story around each, where each of you will be and what you’d like to do. Make this mental picture as detailed as possible down to what your days will be like and how you’ll each feel.
Not only will this detailed mental picture around your goals tell you exactly how much you’ll need to save, it’s going to help motivate everyone to keep budgeting. Creating these shared goals will bring you closer together and give you a common reason to work together.
How Much Do You Need to Save as a Family?
Once you know what you want to do with the money, it’s time to start talking about how much money the family needs to save. That mental picture and story around each goal will help get an idea of how much it will cost.
It’s important you do all this TOGETHER AS A FAMILY. I see a lot of families talk about the family vacation they want to take, then mom or dad goes off to figure out how much it will cost. The rest of the family might have that desire for the vacation but not being a part of the budgeting process means they might not really understand the cost (or the importance of saving to meet that cost).
By talking about both, what you want to do and how much it will cost together, the sacrifice of saving becomes rational for everyone. Even the kids can put together the simple equation, we want this which equals this cost so we save this amount.
Track Family Expenses for a Week
Most families have a more-or-less idea of how much they spend each month. The big bills from rent to car payments and utilities are all pretty much the same so you get an idea of how much it takes to make ends meet.
But these aren’t the bills that kill budgets!
It’s the little things that kill a budget, the death by a 1,000 little cuts. Most people don’t realize all the $1 or $2 expenses that add up over a day and a week to blow out your budget and eat away your savings.
That’s why everyone in the family needs to keep a spending journal for at least a week. Write down every little thing, no matter how small…down to the $0.25 gumball the kids want every time you go to the store.
This isn’t going to make your budget exact but you’ll be surprised how many little expenses you find that you wouldn’t have realized otherwise. Track your expenses for the week, add in another line for those infrequent expenses that only come up every few months, and you’ll know better than ever where your money goes.
Create a ‘Where the Money Goes’ Budget
Time to get the family together again to write out your budget. This isn’t your final budget though, this one is just listing out your current income and expenses.
This is your reality-check budget.
Writing out this current budget with all the ‘little things’ expenses you found during your week of tracking your spending will open everyone’s eyes to where the family’s money is going.
A lot of times, in a family budget, those spending the most and not helping will not want to take responsibility for their spending. This current budget puts the responsibility on each person without the others having to say, “I told you so.”
Create a Family Budget to Meet Your Goals
You have your shared goals. You know how much it’s going to cost to meet them. Now it’s time to develop a budget that will get you there.
From your current budget, there should be a few things everyone can agree can be sacrificed. No single person should be asked to give up all their unnecessary spending (unless everyone is giving up all their idle spending). Just like those goals, the sacrifice to reach those goals need to be balanced across the entire family.
One way to force your budget into saving is to take the amount you need to save out first, directly under income and before other expenses. Having this amount transferred immediately from your checking account to savings will force you to cut expenses if the rest of your budget doesn’t balance.
Depending on your goals and income, this might mean some pretty big sacrifices in spending. Try replacing activities that each person spent money on with family activities that don’t cost as much. This helps fill the gap left by spending and can even help bring everyone closer.
Don’t Forget to Save for Emergencies!
The most frequent reason why a budget fails is all the unexpected and emergency expenses that seem to come up when you can least afford them. Not only do car repairs, medical bills and other expenses drain your savings but it can be a demoralizing hit to your goals.
What’s the point of even saving if it’s one-step forward and two-steps back with your savings?
Start by saving at least a thousand dollars in an emergency fund but optimally try aiming for two- or three-thousand to head off the more expensive setbacks. Most experts will recommend three- to six-months’ worth of expenses in an emergency fund but that might not be possible for a lot of families. A smaller fund will still protect you from the majority of emergencies but also allow you to start saving for your goals.
How to Stay on Track with Your Family Budget
For the first few months, it’s a good idea to check in on your budget and savings each month. This will help create those savings habits and keep everyone from getting too far off track. Revisit that mental picture of your family goals each month, talking about the goal and what it means for everyone.
After a few months, as you get more comfortable with the budget, you can shift to reviewing it every few months but these first months are critical to keeping that motivation going.
If your budget does get broken or the family falls behind in saving, don’t rush to blame one person. Putting a family member on the defensive over their spending is just going to start an argument and push them away. Instead, revisit the budget and how much the family needs to save for those shared goals. Go through the different ways each person is sacrificing spending and saving to make sure the budget is fair for everyone.
Family budgets don’t have to be a source of argument or hurt feelings. With a little planning and conversation, you can create a family budget that helps you reach all your goals. Not only will you save more money but this kind of process will help bring your family closer together and develop the communication to make it stronger.