How to Create a Family Budget

Crediteck Blog

Budgeting

Budgeting

 

Creating a household means a blending of funds. A family budget differs from the budget of a single person in several ways. One, your income is presumably a bit higher is both parties are working. Two, you now are attempting to balance the needs and wants of at least two people, possibly more, which will require more planning and conversation.

 

The sooner you create a family budget, the better. That’s not say it’s ever too late to plan, however. Any time is a good time to make a budget.

 

 A budget isn’t punitive, it’s simply a spending plan. And if you are bringing adults together as a family, finances are a major component. So long as you’re discussing sharing the bills, you might as well discuss your priorities as a family and make a plan.  

 

Be sure everyone is on board

Most family plans involve two adults pooling income in some way. Your family budget might also include older children or other adults who are working and contributing toward the family bills, so it’s important to bring all the stakeholders together to make decisions. 

 

The most important decision is to have a budget at all. Everyone has different ideas about money and how and when to spend it. A conversation should start with the opinions of everyone on budgeting to be sure you’re on the same page. A good way to align money values is to decide what you are budgeting for. Some common reasons to establish a budget might be:

 

  • To pay down debt or work to be completely debt-free
  • To save for retirement
  • To saving for other big goals like college funds or purchasing a home
  • To prioritize spending in certain areas, like travel or entertainment

 

Be sure everyone has agreed to make a budget. Forcing a budget on someone can make them resistant, and couples who fight about money are 30 percent more likely to wind up divorced. 

 

Make your list of priorities before crunching the numbers

Begin your work by discussing financial priorities. What is most important to each person in the household? What are your joint goals? Your individual goals? It’s important to discuss your goals and priorities before you start tallying up spending. 

 

Once you start looking at specific dollar amounts, emotions can run high. Creating a plan using only ideas and values help solidify your thinking, making it easier to see later where you spending does not align with your values. What is most important to you as a family? Some areas to consider:

 

  • Retirement
  • Emergency savings
  • College funds for children
  • Paying down debt or loans
  • Saving for travel, furniture, appliances, or new homes
  • Entertainment spending
  • Grooming, fashion, and clothing
  • House and vehicle spending

 

Determine your joint income

Budgeting isn’t just about how much you’re spending. It’s also about how much you’re bringing to the table as income.  Up to half of marital troubles come from money arguments, and determining joint income can be a big one. 

 

Don’t assume that both of you are going to deposit your entire paycheck every month into a joint banking account without discussing it first. Try to leave emotions out of the conversation while you work the math. There are several schools of thoughts on combining income that might be a good fit for your household.

 

  • Some households deposit their full paychecks into a joint account and pay all bills together.
  • Other households make a budget of shared expenses and then deposit half of the total amount into a joint account while maintaining separate accounts for discretionary spending.
  • Still other households deposit a portion or percentage of their paycheck into a joint account, perhaps 80%, each keeping 20% of what they earn as their discretionary spending.

 

There are several factors that will determine the right plan for your household, of course. Some of these factors include:

 

  • If both adults are earning similar wages
  • If one adult is providing the bulk of the income in the household
  • If the household is a blended family with different financial responsibilities
  • If the adults are both just starting out financially or if they have years of savings and financial experience
  • If both adults are comfortable with calculating and monitoring the finances

 

Match your budget with your priorities

Once you’ve established your family income, it’s time to see how much you’re spending. This can look a little different depending on how you determine you want to combine your income. 

 

If you’re simply splitting the joint bills and savings, there is no need to focus on how each partner in the household is spending their discretionary funds.

 

If the household is splitting every bill and combining their total income, the focus will be slightly different as you parse through the credit card and bank statements. 

 

Look at the amount you’re bringing to the table every month and then look at your priorities. Match the amounts accordingly.  Know, however, that some may be out of balance initially. 

 

Your housing, for example, will be a set amount based on rent or mortgage. If you find that you’re spending more on housing than you’d like as a family, you might consider downsizing when your lease is up or selling in an expensive area and moving somewhere more affordable. 

 

Automate and streamline your budget when you can

The more automation you use in your budget, the easier it will be for the household to maintain it. If you have three different savings goals, set up three separate savings accounts for each goal. (Use a bank that allows multiple accounts without extra fees, of course), and then set up an automatic transfer every month to send the amount you’ve determined right into the account.

 

Apps and software make it easy to track spending across multiple categories, which help both partners see where the spending is happening and if any categories need adjusting.

 

Check back frequently

Every month, check in on the numbers. How is the savings coming along? Is everyone still happy with the spending? A family budget is a spending plan, and every plan needs adjusting from time to time. 

 

Setting up a family budget isn’t a one-and-done plan. It will need tweaking and adjusting over time and as priorities and incomes change. The best family budgets are the ones that are comfortable for all family members.

 

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Benefits of Budgeting

Crediteck Blog

Budgeting

Budgeting

When you’re working to pay the bills every month, budgeting can feel like it’s beyond your reach. Who has time to organize and control money when you’re barely making enough to get by? While it seems like budgeting is best when you have extra cash, the opposite is true. Budgeting is for everyone, especially those scrambling for every dollar every month. 

Budgeting will give you control of your finances. It will help you save money when it seems like there is no money to be found. Finally, budgeting won’t limit how much money you can spend. A good budget simply helps track your spending and lets you enjoy your money more.

Budgeting lets you control your money

Without a budget, your money may be controlling you. If you find you routinely run out of money at the end of the month, or if you realize that a day or two delay in a paycheck can cause serious stress in your household, know that a solid budget and emergency fund can help you live with more control and less stress.

One third of all Canadians are blowing through their paycheck every month. That doesn’t leave any room in the budget for emergencies or savings. While you do want to use every dollar you earn purposefully, you don’t want to spend all your money without accounting for it. 

Start with a reckoning

Before you can set a budget, you must know your real numbers. What are you spending every month on food? On clothing? On fun and entertainment? Take a deep breath and dig through your bank statements. Crunch the numbers from your credit card bills. 

Your goal is to track all your money for a month or two to see if your spending is consistent and where every dollar is going. Some expenses will be set, like your car payment and your rent or mortgage. Other expenses will be more fluid, like how much you spend having fun on the weekends. 

Be prepared to be surprised by the numbers when you finally tally them up. It might feel emotional, but really this is just math. Money spent is money spent. Your goal is to see where it went.

Set your priorities

Many Canadians feel like a budget is a punishment. How can you have fun when you’re stuck on a budget every month? But the right budget isn’t constricting. A budget is simply a spending plan. You already know how you’ve been spending your money, so now it’s time to prioritize.

What areas are set in terms of spending? Presumably your living situation and your vehicle require set payments every month. You may have loans that require set payments every month as well. Once you’ve subtracted those funds from your monthly income, look at what’s left. 

That is your money, and you can decide what’s most important when it comes to how you enjoy it. Do you want to spend more on streaming services and technology? Plan for that in your budget. Would you be willing to cut your media down to one streaming service because you’d rather enjoy time out with friends on the weekend? That’s your call. What’s important to keep in mind is that you may have to balance priorities to be sure you can afford what’s most important to you. 

Establish a savings plan

One priority we should all have is a savings plan. Only two thirds of Canadians have emergency savings. A full one third of all Canadians admit they would struggle to come up with $2,000 if an emergency struck. Knowing that you’re stretched thin is stressful enough. Constantly worrying about a potential cash flow crisis is exhausting.

When you’re establishing your budget, you are in the perfect position to set up a savings plan. It’s easy to get overwhelmed by the advice on savings, especially when you’re just getting started. Adults are encouraged to save 10% of their income for retirement. They are supposed to also have 3-6 months of basic living expenses stored away as accessible cash in case of job loss.

Those numbers are well and good, but they aren’t immediately accessible for some families. Instead of worrying about saving thousands, worry about saving hundreds. Start by carving out $100 or $200 per month in your budget and stashing in a savings account. Once you get budgeting under control or get your next raise, you can boost that savings a bit at a time until you’ve bought yourself some peace of mind. 

Stick with your budget

Once you’ve decided how much you want to spend on what every month, the real work of budgeting begins. Remember that budgets aren’t designed to deny. The right budget allows you control over your spending and it’s the right balance of priorities for you. Sticking with a budget is just like forming any other healthy habit, but there are a few ways to help make budgeting successful.

  • If you try it and immediately realize you didn’t prioritize correctly, adjust your categories. You are in control of the budget, and you can make changes if you realize that splurging on something is more important than you realized. Just be sure it stays balanced.
  • Consider technology to help you be successful. There are numerous apps and software programs that can help you track your spending, stay on top of the numbers and get a visual report on your spending at any time, making it easy to see when you’re spending too much in one area too quickly.
  • Automate your saving. If saving is new for you, make it foolproof. Automate your savings by setting up automatic transfers. Some companies allow you to direct deposit into multiple accounts. Another option is an automatic transfer on the day that your paycheck arrives. Your paycheck comes in, your savings go out. Nothing to remember on your end!
  • “Hide” your savings. Watching your savings grow is fun, but it can be problematic as you get started with a new habit. Rather than setting up savings in the same account, you look at daily, consider opening a new account with a different bank: one you don’t check every day. Then your savings are out of sight and out of mind until you need them
 

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