Probably everyone knows how bad the current inflation rate is and its effect on the economy and the prices of commodities. Many are learning to plan and cut down on their spending as a way of navigating this period and managing their finances. This process of planning is called Budgeting and such a plan is called a budget.
Budgeting is the estimation of one’s income and expenses over a defined period of time so as to curtail excessive spending. Creating a budget often includes how, when and what you wish to spend on.
Budgeting is an important financial strategy that helps you manage and keep track of your regular earnings and spending, giving you total control over your finances.
What is a family budget?
A family budget is a plan that covers the inflow and outflow of money of your entire family. It is essentially an estimation of how much you wish to spend on the things your family may want.
For families, especially low-income and large families, creating a family budget is essential as it allows you to utilise funds and prepares you for emergencies. It also gives you the opportunity to prioritise and focus your money on the things that are most important to you and your family.
Taking care of your family does not stop at making meals for them, buying their favourite things or just providing them with their basic needs. It also includes being intentional about the family’s finances and creating a proper family budget.
Essence of a family budget
Imagine you were to record and calculate the amount of money you spent just these past months on the needs and wants of your family, you may find that a reasonable amount of your income went into things that did not really matter.
For example, your family is subscribed to the DSTV premium subscription which gives you access to over 170 video and 53 audio channels. However, you end up just watching a few of these channels. Or the random gifts you get your kids at the end of each workday which when closely looked at, amount to a huge sum unaccounted for.
A family budget is an integral part of running the day to day activities of the family. It is a powerful tool that when utilised, avails you and your family the opportunity to create and also sustain wealth. This is because it eliminates room for impulse buying and allows you to plan how you wish to allocate your funds in order of priorities.
How to create a family budget
Although creating a family budget is uncommon, it is one of the most important money management strategies to keep your finances grounded. Family budgets can be planned either weekly, biweekly, monthly or every quarter of the year. However, going back regularly to review and probably readjust is key. This is because it helps you remain focused on strictly adhering to your family budget. It also gives you room for accountability.
So how do you create a realistic family budget?
- Make an estimate of the family’s combined income: One way to start making a family budget is by getting an estimate of every stakeholder’s monthly income and the average agreed contribution each person is expected to make.
In many modern families, everyone who earns an income usually contributes to the upkeep of the family. This could be adult family members who live with you, a partner, parent(s) or adult children. So before you make a family budget, make sure you calculate an estimate of the family’s individual and combined income as it gives you an idea of how much money is available and how you expect to spend it.
However, this is only in the case where you have other adult people around. If you’re a single parent or have no support from a partner, you can work your budget around your total income and ensure that you do not spend more than you earn.
- Create a list of things you want to spend on: If you have a pen and paper, then this is the next key thing to making that family budget. A budget is halfway complete when you have the list of your family’s expenses. It is good to note that expenses can be fixed or variable.
Variable expenses are costs that vary from time to time such as groceries, maintenance and repairs, gifts and special treats for your family.
Regular expenses are usually fixed. They remain the same for a long period of time. Some examples are school fees, utility bills, rent, subscriptions and loan repayments.
So depending on the order of priority and if your income allows it, it is important to consider all types of expenses when listing the general needs of your family.
- Assign how much you wish to spend on each of these items: After making your list, what comes next? Your budget. How much money do you want to spend on groceries this month? How much TV subscription or toiletries does your family consume? It is important to not go overboard with your budget. Your spending should not surpass how much you earn or the estimated amount you wish to spend.
- Review your budget: Now that you have your family budget, it is time to take another look at it, run your family through it and be sure it is what they want. At this point, you can tweak your family budget by adding or eliminating any expense that does not fit into what you or your family want.
For example, you may decide to cancel a particular subscription or replace it with a cheaper one, if you don’t use it often.
Things to consider when creating a family budget
Family budgets are quite different from personal budgets as they aren’t just for or about you; they cover other members of your family. So, when making one, it is necessary to remember that a pot of stew may not be enough; there will be more clothes to buy, more light and resources will be consumed. Here are a few things to put into consideration before you create your family’s budget.
- Your family’s combined income and the average amount you wish to spend: Budgets are meant to keep your finances in check by controlling the inflow and outflow of money. Considering how much each participating adult earns and the average contribution they are expected to make goes a long way into creating that realistic budget that helps you achieve the above goal.
- The needs and wants of your family: It is important to consider each person’s needs before the overall needs of the family. Everyone has different needs; what A wants might not be what E needs. And vice versa.
- How often you wish to revisit your budget: Regularly revisiting your family budget is a smart way to keep yourself in check and track how well you’re doing with sticking to your budget. You can schedule a bi monthly, monthly or quarterly budget review.
- Flexibility of your budget: It is normal to figure out more things after creating a family budget, so your family budget doesn’t have to be perfect or unflexible. You should be able to occasionally tweak it as you want as long as you do not go beyond your income or the cash particularly set aside for your budget.
- Budget type: There are different budget types to consider when creating a family budget, and you can choose the best option that works for your family. These budget types are dependent on your family’s choices and how regular their income is.
One of the most common budget types is the 50-30-20 budget. This budget splits your income into three categories where 50% goes into your family’s needs and essential bills; 30% into their wants; and 20% into savings or investments. In this article, we talk about the differences between savings and investments and which of them you need to create wealth.
- Open communication: Conversations can be hard to have, especially when they are about money. However, to achieve a realistic budget and reach a set financial goal, it is important to be open about expectations and financial changes, even with your kids. Teach them the differences between their needs and wants and how to categorise them according to priorities. You may not have all the money to indulge their excesses, so it is key that they know. Involve everyone that needs to be involved and ensure that you continually check in with them.
Finally, have it in mind that you may at some point, be needed to share bank statements, receipts and a breakdown of how you spend the money.
- Consider getting a tool: It doesn’t get easier, does it? While keeping track of your spending may be one of the hardest things to do, there are thousands of apps and worksheets designed specifically to help you achieve this. These tools allow you to log in every household expense you make whilst providing you with other amazing features.
For example, the google spreadsheet and microsoft excel are two free amazing spreadsheets amongst many others that allow you to create and track your budget.
You can access other free budget spreadsheets here and mobile apps for budgeting here. However, whether you are using a spreadsheet, a mobile app or even paper and pen, ensure they are easy to use and efficient for tracking your expenses.
Finally, your family budget is incomplete if you do not put away some funds towards your savings and investments as the goal is to gain control of your finances and grow your wealth. To help you achieve this, Risevest offers you the best investment options in addition to tailored goal-based plans to make your budgeting a lot easier. Some of these goal-based plans allow you to save and invest towards a particular goal you may have such as higher education, owning a home, rent, travel plans and even your kid’s future! To access these options, start here.