Budgeting as a family can be a daunting task—all those different accounts and expenses and surprises! But the payoff for getting your financial house in order is worth it.
“When we have a plan for where we want our money to go, our lives work so much better,” says Miata Edoga, Founder and President of the Los Angeles-based financial education company Abundance Bound. She tells Parentology that, “A healthy relationship to our finances leads to a healthier happier family overall.”
Here, then, are five tips for how to create a family budget and stay on it.
1) Track What You Spend
You can’t create a budget in a vacuum so the first step is to track what you’re spending now. For at least 30 days, make a commitment as a family to keep track of every penny you spend. To do this, you’ll need some kind of tracking system.
The most efficient mother is using a financial app like Mint, which is free. You connect your bank accounts and credit cards to the app so that every penny is tracked without you having to think about it or write anything down. And most apps allow you to create categories for your expenses like “Groceries” or “Gas” which you’ll see is key.
If you want something less technical, you can get a notebook where every family member agrees to write down what they spend and on what. Another option could be a computer spreadsheet where you enter your spending manually. (But, again, an App like Mint will do all of that automatically.) The important thing is to be vigilant in gathering the information—even if it’s uncomfortable.
“When we’re tracking, we have to put on our detective hats and take off our judge hats,” advises Edoga. “This is the phase where you’re going to [think], ‘Oh my gosh, I spend this much on manicures? I’m a terrible person!’ Or if you’re in a couple, you’ll [say], ‘What have you been doing at Target, honey?’” Again, think like a detective, not a judge. Knowledge is power and you’re in the gathering information phase.
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2) Break Down Your Expenses by Category
Once you’ve tracked your expenses for at least a month, divide your spending into basic categories like RENT/MORTGAGE, UTILITIES, GAS, ENTERTAINMENT, GROCERIES, etc. They can be relatively broad—although you’ll definitely want to divide FOOD up into GROCERIES, RESTAURANTS and maybe COFFEE SHOPS if you enjoy the occasional Starbucks run. If there are stores where you buy items from more than one category, like say Target or Amazon, you may want to make them their own category to start.
“The key,” stresses Edoga, “is to find a way of approaching the process that doesn’t overwhelm you out of the gate.”
Once you’ve divided your spending into categories, sit down as a family and review what you spend in the different areas. “For many people, looking at their initial numbers will be a shock to the system,” cautions Edoga, “just because we don’t have awareness. Things add up and they often cost more than we think.”
How much your children are involved depends on their ages. However, we definitely recommend getting teenagers invested in the process. Not only is it good for the family but it will help your kids develop good financial habits for when they’re older.
3) Focus on a Few “Danger Zones”
There are certain expenses that we don’t have much control over, like rent/mortgage or gasoline for the car. So choose to focus your attention on a few “Danger Zones.” These are categories where realistically you know that with some attention you could do better, like groceries or entertainment. Then agree as a family on a new goal amount that you want to spend in that category.
“I would shoot for a reduction of somewhere between 10 and 25 percent,” offers Edoga. “In my experience, a 25 percent reduction is the maximum of what is realistic for most families. It’s like a diet. You don’t want a crash diet. You want something you can stick to so you can build habits that will serve you for the long haul.”
Then monitor your Danger Zones on a weekly basis. An app called Good Budget can be helpful when tracking your Danger Zones because it allows you to set a budget for a specific category and track as you go. That way, you’ll always know how you’re going.
“Staying on top of these few categories every week tends to shift behavior in the family without anybody feeling like they’re suffering,” says Edoga. “For example, If I only have $26 left in my grocery allotment for the week and I still have two days left, I can consider my options: I either won’t go to the grocery store and make something work with what I have at home, or I’ll go to the store and make it like The Price is Right where I have to bring these purchases in and not go over $26.”
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4) Comparison Shop for Family Favorites
You probably won’t have time to comparison shop for everything your family buys, but if you discover there are certain things that your family really loves, it’s worth trying to get those numbers down. For example, if your family goes to the movies every weekend, it might actually save you money to join a subscription service like AMC A List. In Edoga’s case, it’s all about the berries.
“My family is obsessed with smoothies and when I saw the numbers in my groceries category I was shocked,” she reveals. “So I’ve started buying our frozen fruit at the 99 Cent Store. At the major chain, the same bag of berries might be $2.50. We shaved our monthly grocery budget by $200 just by shifting where we were shopping for certain things.”
And some expenses that you assume are fixed — like your cell phone or cable bill — might not be as locked in as you think. At least two or three times a year, make it a point to call the companies and see if you can get a better deal. “It’s perfectly reasonable to call up and say, ‘I want to make sure that our family is on the very best plan you have available right now’.” advises Edoga. “I did that recently with my cell phone company and now my bill is $60 a month less.” The same can apply for families carrying credit card debt. Call up and ask for a lower rate. The worst they can say is no. And if they do, call back a few days later and try another representative.
5) Find the Fun in It
If you position things correctly, learning how to create a family budget can feel almost like a game. You CAN have fun with it.
For example, before you do your initial 30 days of tracking, sit down with your spouse and kids, and see who can come closer to guessing how much you spend in certain categories. Write down your predictions and don’t show each other until after you’ve tracked your 30 days. Then see who came closest. Chances are you’ll all be surprised.
And depending on the ages of your children, letting them strategize with you—particularly around categories that affect them most like entertainment and restaurants—can help create the sense that you are a team. “If everybody is invested and knows the goals, then you can have conversations like, ‘Okay, do we want to go out to eat tonight or do we want to wait till Saturday?’ or ‘If we order a pizza tonight, can we also go out Saturday?’ Make it like a game,” says Edoga. “Those kinds of conversations don’t just help you to stay on budget, they bring you closer together as a family.”