How to Make a Family Budget
Learn How to Make a Family Budget:- IF YOU’RE NOT GOOD AT Making a Family Budget or maintaining a household budget, you’re not alone. Many families operate without a spending plan, and even those who think they are budgeting may not actually be doing so. The Certified Financial Planner Board of Standards surveyed 300 adults between the ages of 35 to 65 who had investable assets of at least $100,000 in 2018. Nearly 60 percent said they don’t track spending, and two in five said they have never had a budget. Among those who reported having a budget, 43 percent describe their budget as a tracking tool rather than methodically planning where their money will go in advance, based on their income and expenses.
Steps to Make a Family Budget:-
Although, the budgeting process involves more than simply recording receipts and taking stock of spending habits. Here are eight important steps for making a family budget:
- Bring both partners together.
- Track income and expenses.
- Evaluate your current situation.
- Trim costs.
- Build savings.
- Get out of debt.
- Lower your taxes.
- Check-in frequently.
If you’ve never made a family budget or you aren’t sure if you’ve effectively created a plan that reins in unnecessary costs and factors in your monthly income and expenses, you should read and learn more about each step in the detail which follows right next.
1. Bring Both Partners Together
A Family Budget will never work if the adults in the family aren’t on the same page. Before you start crunching the numbers, have a frank discussion with all decision-makers in the house to hash out shared and individual financial goals.
“Each one of you might come to the table with a different priority,” says Dawn-Marie Joseph, president of wealth management firm Estate Planning & Preservation in Williamston, Michigan. In that case, it may be necessary for each party to compromise in order to create a budget that all family members will back.
2. Track Income and Expenses
Before you can Make a Family Budget, you need to understand your current financial situation. “The most critical, and often painful, part of the process is facing your numbers,” says Erin Lowry, author of “Broke Millennial Takes On Investing.” According to Lowry, “Once you have a sense of how you’re spending your money, then you can create a realistic budget based on prioritizing needs then goals and then wants.”
This doesn’t have to be a long or arduous process either. “Technology does a lot of this work for us,” says Joseph Maugeri, managing director of corporate relations for the CFP Board. Many banks and credit cards will aggregate account information and produce income and expense reports. You can also turn to beneficial and free budgeting tools, such as apps from Mint and Personal Capital.
3. Evaluate Your Current Situation before you Make a Family Budget
As you trail expenses, place them into categories that make sense, such as housing, entertainment, dining out and debt payments. “The exercise itself is going to reveal some interesting results,” Maugeri says.
Once you know how much you spend in each category, decide which expenses are fixed and which change throughout the year. It’s also helpful to identify which categories are optional, meaning they cover expenses that are nice but insignificant for your family.
As you review the categories, determine whether any spending is excessive. “We actually have a budget sheet with what percentage they should spend in each category,” says Trey Peterson, a financial professional with advisory firm Haven Financial Group in Burnsville, Minnesota.
4. Trim Costs – Key to Make a Family Budget
If spending in one category is too high or if there is no money left over for savings or debt repayment, it’s time to trim expenses. “Almost everyone has things in their budget that they can cut and not even feel it,” Peterson says. “A lot of my clients have kids who are still on their cellphone plan or on their auto insurance.”
Dining out tends to be a drain on many budgets, and Peterson suggests families challenge themselves to cut that amount in half. Menu planning, shopping sales at the supermarket and buying items in bulk can all reduce the cost of groceries and make it more economical to eat at home.
Cable, newspaper subscription services and impulse purchases made online are also low-hanging fruit when it comes to reducing household spending.
5. Build Savings
Savings should be a top priority for any money left over after monthly expenses are paid. While it may be tempting to focus on paying down debt first, an emergency fund is equally as important. “If you lose a job, how are you going to pay your car loan and your student loans?” Joseph asks.
After an emergency fund, retirement is the next savings priority. Workplace 401(k) accounts and IRAs offer tax incentives, making them a good spot to deposit money for retirement. “It’s also ideal to take advantage of any employer matches (in) retirement programs,” Lowry says.
6. Get Out of Debt
Part of the budgeting process is balancing the need to pay off debt with the need to save for the future. While having an emergency fund is important, it may be best to shift your focus to debt repayment after that.
Maugeri says many financial planners approach the issue from an interest rate perspective. If a debt charges higher interest than savings would yield, it may be better to pay down debt than boost savings.
Complicating this matter is the fact that some debt comes with tax advantages. For example, for up to $2,500 worth of student loan in the USA, interest can be deducted from federal income taxes, and mortgage interest can be included on itemized deductions.
However, the Tax Cuts and Jobs Act of 2017 means people need to reevaluate some tax deductions. The law nearly doubled the standard deduction, meaning far fewer people are itemizing and thus benefiting from a mortgage interest deduction. “With the new (tax) plan, there is no benefit to keeping a mortgage,” Peterson says.
7. Lower Your Taxes
Don’t overlook the importance of taxes while you make a Family Budget. Reducing the amount you pay to the government can free up money for other priorities. What’s more, putting money aside into tax-advantaged accounts can help ensure you’ll have funds available for future expenses such as health care, college, and retirement.
If you have a qualified high-deductible health insurance plan for your family, you can deduct up to $7,000 deposited into a health savings account in 2019. That money is also tax-exempt when used for medical expenses. For college savings, consider a 529 plan which doesn’t provide an immediate federal tax deduction but may have state tax benefits. These accounts grow tax-free and can be used tax-free for qualified education expenses.
As for retirement, a traditional 401(k) or IRA offers an immediate tax deduction on contributions. Withdrawals in retirement are subject to tax though. If you’d like to avoid paying taxes later in life, use Roth accounts instead.
Contributions to Roth 401(k) accounts and IRAs aren’t deductible, but the money grows tax-free and can be withdrawn tax-free after age 59 ½.
8. Check In Frequently
Once completed, a budget should serve as a road map for how a family plans to spend its money going forward. To be effective, it should be consulted frequently to ensure actual household spending is in line with what is written. As family circumstances or priorities change, the budget can be adjusted.
Meeting monthly to review the previous month’s spending and look forward to the coming month’s expenses can help partners stay on top of family finances. Combining a budget review with a date night can be a good way to make this process feel less like a chore, Peterson says. “It’s a great way to make sure a couple is on the same team,” he says.
It is not an easy task to Make a Family Budget which successfully improves your family’s financial situation, but putting an effort to Make a Family Budget and abiding by it religiously will definitely start to change thing slowly but steadily. It is more important that each and every family member understands the importance of the Family Budget, and everyone puts some effort to make it successful.