Making a budget sounds like a simple and logical way to manage the household's budget. However, without a little research to find out just what's going on with the finances and what changes need to take place, you might find budgeting more of a nightmare than a financial savior. Fortunately, if you take the time to learn about your spending habits, figure out which expenses are most important to the family and create a financial plan based upon your new knowledge, you'll easily be able to create a working family budget and accumulate savings toward your family's goals.
Keep a one-month journal to find out where all the money is going. You probably have a fairly good idea of the big stuff, like the mortgage payment and utility bills, but the monthly grocery bill might be kind of sketchy and you might not have any idea what goes out in a month on coffee, clothing and other less concrete expenses. Meticulously record everything. When you add it all up, there is probably more going out each month to these odds and ends than you might have expected.
Review the total spending at the end of the month. Add up all the money spent and subtract it from the amount of money earned during the month. If you're in the negative, you'll definitely want to make some adjustments. If you're left with money at the end of the month, you'll have to determine whether you would like more money for savings. Either way, you are now aware of where your money is being spent.
Make a chart of essential and non-essential monthly spending and divide the items in your journal into these two categories.
Review the items on the non-essential list first and see what can be done to cut down these bills. For example, if you can't manage without your coffee on the go in the morning, invest in a thermos and skip the coffee shop drive-thru. If you're paying for your teenagers to spend every weekend at the movies, have them host a movie night at home at least once or twice a week, or make them pay for their outings with their allowance or part-time job earnings.
Review the items on the essentials list, such as groceries and utilities, and brainstorm ways to cut down these bills. You can hold a family meeting to discuss turning off lights, televisions and other appliances when leaving a room and running dishwashers and washers during non-peak hours if your utility company charges premium rates during peak hours. Start coupon clipping and look for sales on items that you buy regularly -- not sales on items you don't need but are on sale for a great price.
Create goals so you'll feel more motivated to stay on budget. You'll be less likely to splurge for that extra box of cookies if you're saving for a family trip next spring. It will also help to get the entire family on board with doing their part to reduce unnecessary expenses.
Write a budget for the next month, based on the changes you've made to reduce costs. Leave a blank space next to each item on the list to record the actual expense incurred. If possible, try to include a budget for unexpected expenses to give yourself a little breathing room when the inevitable arises at the least opportune time.
Review your budget at the end of the month to see how you did. If your budget lined up with the actual expenses incurred, way to go. If you're overspending in any area, take a look to see if any unnecessary spending took place. If not, you might be cutting the budget a little too tight. Try to adjust your budget accordingly for the next month and try it again. Don't worry; budgeting is not an exact science, and your expenses might even change from month to month, making a precise budget difficult to follow perfectly. Keep putting in the effort to monitor and adjust your spending, and you'll be on the right track to make sure the family reaches its goals.
Items you will need
- Family Financial Workbook: A Family Budgeting Guide; Larry Burkett
- Comstock Images/Comstock/Getty Images