How to make a family budget plan

Quick insights

• Defining your family’s shared financial goals can help the adults in your household make and stick to a budget.
• The 50-30-20 rule is a way of creating a family budget that offers a solid starting point for categorizing your expenses.
• Sticking to your budget can be just as challenging as making it, so it’s important to find a method that works for you.

Keeping track of expenses as an individual is hard, and the complexity can multiply when accounting for several people in the household. But budgeting for family expenses doesn’t have to be a pain. Taken one step at a time, creating your family’s budget is an attainable goal that can help you keep the big picture in focus, day to day. In this article, we’ll focus on providing step-by-step budgeting tips for families.

Step 1: Identify your “why”

Before looking at the numbers, consider your objective: Why do you want to create a family budget plan? Whether you’re looking to reduce debt, prepare for long-term goals or simply manage daily expenses, keeping these priorities top of mind will help you focus your family’s budget as you create it.

It may be helpful to define some financial priorities on paper so that you can refer to them later when making decisions about your family’s budget. It could look something like this:

• Short-term: Save for your child’s class trip to D.C. (it’s coming up fast)
• Mid-term: Pay down your credit card (to avoid interest penalties)
• Long-term: Contribute more to retirement (it takes discipline, but the benefits are clear)

Writing your ideas down first is a good first step that can help you better understand where money can be spent and where it needs to be saved.

Get everyone on board

If two or more adults are contributing to your household finances, it’s important that everyone is aligned to the same goals. Depending on your relationship and how money is shared in the household, you may want to include them in the process of creating the budget.

Step 2: Sketch your family budget plan

Once you’ve given your family’s financial goals some thought, it’s time to draw up a preliminary budget. Many find using a spreadsheet for family budgeting helpful. The first step is to identify your household’s monthly income, which is the number you will work from when determining how much you can spend in each category.

If you’re paid a standard amount on a weekly or biweekly basis, this should be an easy number to find. If your paychecks vary in size, try adding several together and then dividing by the number of checks to find an average.

Meet the 50-30-20 budget

The 50-30-20 budget rule suggests allocating your income with a standard formula. It works like this:

• 50% for needs: this category includes recurring bills like rent or mortgage, phone, utilities, internet, groceries, medications and other essentials.
• 30% for wants: “wants” are expenses for the things we enjoy, like money spent on hobbies, entertainment, memberships and dining out.
• 20% for goals: this category includes contributions to your family’s emergency fund, debt repayments, long-term savings, retirement accounts and college funds.

To begin implementing the 50-30-20 budget rule, divide your income into those three amounts. For example, if your income is $4,000 per month, you’ll end up with $2,000 for needs, $1,200 for wants, and $800 for goals. Keep in mind, this formula is only a rule-of-thumb to guide your process—a good budget for your family may follow a different ratio.

Step 3: Review 60 days of expenses

Once you have a rough allocation sketched out, it’s time to look at your family’s recent spending and categorize your expenses. Working directly from your most recent credit card and bank statements to collect these numbers is ideal. This part of the process can be overwhelming, illuminating, or both. It’s okay to take breaks, so long as you come back to it.

As you’re reviewing your spending habits, keep these questions in mind:

• Which expenses are recurring?
• Which expenses are variable (change in size, or are paid at different times)?
• In which areas are you exceeding (or falling short of) the percentage set?

Step 4: Draw up your new budget

Keeping your initial priorities in mind, you can now use your rough budget, noted expenses, and observations to create a new budget that’s more ideal. If you’re falling short in one category, see how you might reduce another to bring your figures closer in line.

In general, it’s wise to first look at your “wants” for reduction before “goals” or “needs. If there’s still strain in your budget after sufficiently reducing your “wants,” it may be time to look for unusual savings within your family’s existing expenses. For example, a reduction to the “needs” category may mean shopping for a cheaper phone plan, taking up couponing, or downsizing your living space. If no further reductions are possible, you might need to seek out ways to supplement your income instead, such as with a change of job, finding additional work, or asking for a raise in your current role.

Step 5: Stick to it

Now that you’ve made your family’s budget plan, how do you put it into action? For those who didn’t mind the math that went into setting it up, this may be the most challenging part. Besides embracing the discipline you’ll need to see the job through, to help keep to your family’s budget, you may want to:

• Review on a schedule. Designate time in a regular cadence to review your spending, make notes, and plan adjustments for the next cycle.
• Use a cash envelope system. For variable expenses (like groceries and entertainment), some find it helpful to set cash aside in designated envelopes to limit spending.
• Automate what you can. Automating payments (for recurring bills, contributions to savings accounts, and so on) can make it easier to hit your goals without extra effort.
• Make visual reminders. Put a copy of your budget, encouraging messages, or a picture representing what you’re working toward on the fridge for motivation.
• Communicate with a trusted friend. Sharing about your family budgeting progress with select friends can help keep you accountable and on track.

In conclusion

The process of making and sticking to a family budget will look as different as the families who attempt it. As time goes on, your family’s financial priorities are bound to shift, so be prepared to check in and adjust your budget accordingly. With time and familiarity with your spending habits, budgeting for your family can become second-nature, putting you in a better position to reach your financial goals.