Let’s talk budget! This is one of the least fun discussions to have with your family, mainly because it typically means you’re not doing a good job with your budget. However, having a defined family budget is very important for achieving your financial goals.
So what really happens when you start planning your monthly budget for your family? There are going to be some roadblocks and some things you have to smooth out. Let’s take a look at some of the biggest differences between expectation and reality with planning a family budget.
Expectation: You can get by just planning out your expenses and lumping all your leftover money together.
The easiest way to budget plan is to just list out your monthly expenses, like mortgage, car payments, insurance, electricity, and cable, and then let the rest be a big ol’ lump of cash that you can spend however you want. Let me tell you, I’ve tried it. It doesn’t work.
Reality: Your budget will be easier to maintain if it is clearly structured with amounts for each type of spending.
This is the principle behind most structured budget plans. Everything you plan to spend should be allocated to a certain area. Now, it doesn’t have to be extremely rigid – such as allocating $50 a month to go to out with no other flexibility. Remember, you are trying to sustain momentum on your budget goals for the long run. Take a look at each of your expenses for a typical month and try to set up a specific budget to account for each of those areas.
A great place to start, after you’ve budgeted all of your monthly bills, is to set up a few buckets. Here are some great starting examples:
- Miscellaneous – My wife and I use this primarily for things we realize we need throughout the month that don’t fall into a strict category.
Expectation: You will set your budget up perfectly the first time.
Or the second time. Or the third time. Or the twentieth time. When you’re planning your budget, you think you’ll be able to exactly determine what you need for your monthly family budget. The unfortunate thing is that leads you to believe, when you overspend in an area, that you’ve failed. Your budget needs tweaking, not necessarily your spending. Remember, a dollar doesn’t care where it ends up, so if you spend $200 extra on groceries one month, but spend that much less on lawn care, then you’re doing just fine.
Reality: You will need to tweak your budget monthly to make sure you’re following it well.
Life is crazy, and things change quickly. The problem a lot of people have with their budgets is that they don’t treat them as living documents, and sometimes they don’t even go back to verify that they’re doing things right. A true monthly budget is supposed to be active in your life. Money, unfortunately, runs most aspects of your daily life. If you think about every place that money is involved – the roof over your head, the gas in your car, the clothes on your kids back – you realize that your financial plan should be under your control, not the other way around. Because of this, you need to tame it, and that means actively working with it.
Sometimes you know a big expense is coming up. You can tweak that month’s budget to plan for whatever it is – Christmas presents for your kids, family vacation, new tires for your car, etc. Other times, you may have realized that your typical monthly trends have changed. For instance, maybe you’re spending more on house cleaning and yard work in April and May than you were in February and March. Your budget can and should be adjusted to reflect that.
Expectation: Even with a budget, you won’t be able to save money.
I know what you’re thinking. You know where you money goes every month, a budget isn’t going to help you spend any less. You’re living as lean as you can without starving. How will tweaking my budget help me save more money when I don’t have anything extra?
Reality: A budget will help you see areas of waste and areas you can spend less, even if you think you can’t.
Trust me on this – a good budget is a powerful tool. You may believe that you know where every dime you’re earning goes, but without mapping it out, you may be missing some things. After building up my budget, I found a few small recurring charges – $5 a month here, $2.99 a week there, $7.99 a month there – that I wasn’t using. I cancelled those, and started paying down debts and bills faster, which sped up my savings process.
Even if you do know where everything is, a budget is a goal, and a way to establish priorities. Even if you are aware of where all of your money is going for your monthly spending, a budget helps you focus on what’s most important. If you realize you’re spending $400 weekly on groceries, you can set your budget at $350 a week and work towards that goal. If you succeed, you’ve just got $200 more a month to save.
A monthly budget for your family is the same as a resolution – it should be a goal towards which you strive. Take a look at my posts on how to set goals and what to do if you fail for more information. Your budget should be built around these goals to help you achieve them, not as a burden to fight against every month.