Six Steps to Create and Manage a Family Budget

Budgeting—the word alone brings shivers to the spine. When we think about budgeting, we usually imagine piles of excel sheets and bank statements, calculators, stress, and lots of cutting of things we actually enjoy doing. No wonder only 41% of American households follow a budget. But budgeting is crucial for a lot of reasons, some of which have more to do with your relationship quality than with money.

Research has shown that one of the things American couples argue about the most is money—what to spend it on, when to save it, why there isn’t more of it, what to do when unexpected purchases come up, etc. To add to the confusion, it is pretty common in relationships that one partner enjoys spending, while the other really loves saving. The authors of one study write, “Conflict surrounding a couples’ finances are linked to more intense and longer arguments, a decrease in marital satisfaction, and an increase in divorce rates.”

So what is the solution? Rather than arguing about who spends what, work together to establish a family budget that can hold all family members accountable, and enable you to work together toward achieving your financial goals. It may sound daunting, but creating a family budget is the first step in taking control of your family’s finances. Furthermore, you can get going in just six easy steps.

Step 1: Hold a family meeting to discuss your family’s case for change. Talk about what you do with money right now, why you think it’s not sufficient, where you’d like to go, and why you think a family budget will help you get there. Your family’s philosophy on money should naturally flow from you family values, vision, and mission. If you have kids, you’ll of course fine-tune this process based on what you’re willing to share with them. Giving them some understanding of expenses and income at various ages makes sense; what precisely you reveal is something you should determine with your partner before beginning this process. Overall, though, it is important to keep two things in mind here. First, you want to manage your money, and not have constant bills and expenses manage you. And second, you want to establish clarity and consensus around spending, so as to reduce family strife over spending and work together toward common financial goals.

Step 2: Decide on the tools you will use. There are lots of really good budgeting tools out there—apps, spreadsheets, software. Mint is a good, free web-based and app budgeting tool. PocketSmith has advanced features like forecasting, for the financial enthusiast. But you may prefer hard copies—like spreadsheets. It’s up to you. Also decide who in your family is going to be the owner of this process. You all have responsibilities to understand and adhere to the budget, but generally it is easiest to have one designated person actually keep track of receipts, update the budget regularly, and give feedback to the group. Make sure this person has all the login information, bank statements, bills, etc., that he or she needs.

Step 3: Decide what percent of your family’s income will be allocated to the various categories. Is “housing” going to take up 20 or 25% of your income? What about groceries and eating out? EveryDollar has a good guide to get you started; U.S. News and World Report recently published another easy one. Make sure to get buy-in with this step—do these percentages make sense to the other members of your family, especially your partner?

Step 4: Input your income and expenses, and analyze historical trends. Make sure you understand your income streams. Do you deposit the same amount every month? Or every week? Does your income vary based upon bonus, or commission, or season? You’ll want to be prepared for this. Then, go through the last few months’ expenditures and assign every expenditure to a budget category. You’ll want at least a few months’ worth of data, so you can better understand how the categories may change from month to month. (Utilities can vary a lot depending on temperature; eating out may ramp up or ease back based on whether or not your kids are participating in soccer after school.)

Step 5: Compare your historical trends with your ideal percentages, and adjust where necessary. Do you go way over your established percentages in any category? If so, think about whether that overage is due to unrealistic expectations or whether there is room to trim expenses. Perhaps you spend way more than you realized on your Internet and cable package, for example. You may want to consider whether to alter that budget line, or whether you want to think about cutting back on the package itself or shopping for other options. You may also want to think about comparing your budgets with national averages—the average American spends about $233 per month, per person on food, whether eating at home or going out. Does that number make sense in your family? Are you way over or under that? Remember that when you are under your spending limit in any one category consistently, you should reassign some of those dollars to another spot to keep things accurate.

Step 6: Keep your budget updated, discuss it once a month at a family meeting, and adjust when necessary. For your budget to work, you need to keep it updated—how can one member know how much has already been spent that month on groceries, for example, if the owner of the task hasn’t input all the receipts in weeks? Discussing the budget once a month gives your family enough time to check in, and allows for a good cycle of income/costs, without obsessing. And remember that you’ll need to tweak seasonally, or yearly, for changing costs. Your taxes or cell phone bill may go up. You may find you haven’t allocated enough to one line item, but have a bit more than you need in another. It’s a living document, and it’s meant to change as your family’s needs change.

A budget is a crucial step in helping your family to be more purposeful.  Oftentimes, your goals will require some amount of money—and you’ve got to figure out where that money is going to come from! But also, having a pre-determined guide for how to spend eliminates a lot of arguing. Family budgeting is crucial in determining the direction you want your family finances to go, in helping you to achieve those goals, and in deepening your relationships and improving your family’s ability to talk about serious things.