No matter what your personal financial goals, achieving them generally takes hard work over an extended period of time. Whether you want to get out of debt, purchase a home or save for retirement, a budget is the best way to get there. A family budget is a document that outlines how much you'll spend on each expense category within a given timeframe.
What Is a Household Budget?
A family budget is a document that outlines a plan for a family's finances, serving as a guide for how much to spend on various items during a designated time period. You can prepare a family budget for a month, a year or any other segment of time. Although there are plenty of guides available to help you develop and implement your budget, most important is that you put something together that will work for you.
Here are some of the biggest benefits you'll get from creating a home budget.
- It puts you in control: Having everything on paper helps you understand where your money is going and decide in advance where it will go next.
- It forces you to prioritize: More than 68 percent of Americans feel that they waste money on dining out each month. If you're one of them, you can see how much is going to that and decide to cut back. Even reducing your expenditures a little can give you extra money to put toward reaching your goal.
- A family budget helps you work together: When you sit down together and decide where your money is going, it forms a bond. You all see where your money is going and agree on where you'll cut back to better position yourself to move forward.
How to Create a Budget
Before you can create a household budget, you need to put down on paper where all your money currently goes. There's great software that can help with that. In fact, your bank may already have reporting features that will show you exactly which categories consume your money each month. You'll also need to decide whether you want to use software or pen and paper to write out a budget.
Once you have a detailed understanding of where your money is going, sit down with the rest of the family and decide how much money you want to allocate to each category. If you see that you're spending $500 a month on entertainment, for instance, you may decide you want to reduce that to $300 and put $200 a month toward saving or paying off debt.
Using a Family Budget
Creating a budget is only the beginning. If you prepare a family budget for a month, though, it can feel overwhelming at first. It may help you to break your budget into weeks.
If you've allocated $500 for groceries, for instance, you could divide that amount into weeks and allow your family $125 a week. If you exceed that amount one week, you can make up for it the next.
As important as it is to follow your household budget, don't beat yourself up if you don't stick closely to it, especially during the early months. Keep in mind that it's a suggestion, not necessarily a contract. No matter how well you do on following it, you're overseeing your own finances and making decisions that will improve your overall situation.
Long-Term Versus Short-Term Budgets
When you're creating a home budget, it's important to think both long- and short-term. You definitely need to take a look at how much you're spending and draw up a plan for how you should spend your money each month. But chances are, you're working toward a long-term goal that requires you to set a budget for the entire year.
Before you prepare a family budget for a month, outline where you want to be a year from now. If you're hoping to make a serious dent in your credit card debt, determine how much you'll need to pay each month to reach that goal. You can then move backward, incorporating that financial goal on a much smaller, monthly goal basis.