Family budget: 7 tips for newbies on how to manage it
“That’s how you work, work, and then bam and there is not enough money for a vacation." How often do you have to deal with a similar situation in your life. When there is not enough money, not only for a good rest with the whole family, but also, simply, fun and carefree time with family on the weekend away from the bustle of the city. And then you start to think: what happens to the money? It seems that you earn decently, but there is no money left. What do they go for? Where do they go? Will the family budget help with this? How to conduct it correctly so that there is enough for everything?
Family budget – what is it in simple words
In this article, we will consider the basic principles and recommendations for compiling, maintaining, distributing and planning a family budget. And also practical advice will be given on how to develop useful and necessary habits for its management.
How to manage a family budget
In search of answers to questions about the fate of our money, we invariably come to the understanding that we need to organize and keep records of them. That is, to understand how much money has come to us, how much has gone, and how much is left. Proper organization and management of the family budget will help us to cope with this task. And this will allow us to take control of our household finances.
There are many definitions of this term in the financial literature. Let’s not consider them all. In simple words, the family budget is a financial tool that gives us an understanding of how your money is moving. Keeping a family budget allows you to control the movement of our money and gives an answer on what and how much it should be spent.
The main task of the family budget is to make sure that expenses correspond to your income. That is, so that you do not spend more money than you have. When you take control of the movement of your money, you understand where, specifically, they came from and what they were spent on.
And, most importantly, when doing home bookkeeping, you need to understand what to do with the money that remains after the distribution of income. After all, your financial well-being depends on it.
Remember that the family budget, like any other, must be in surplus. That is, there should be free cash that can be directed to investments.
Before you start budgeting the family, decide who will manage it. Of course, it is better together to determine the items of expenditure and their size. But to lead, all the same, it is better for someone alone in order to avoid mistakes.
Family budget, how to keep it right
When managing a family budget, you need to correctly approach the distribution of income. Fortunately, there is no hard and fast rule or requirement on how to correctly and incorrectly distribute income. No matter how you distribute them, everything is correct. Since it is your money and only you can decide what to spend money on first of all and how much.
There are several recommendations that you should pay attention to when distributing income. And first of all, they are related to your goals and objectives that you want to solve by means of budgeting.
The first recommendation is to allocate at least 10% of your total income to building your wealth fund or personal pension fund, whichever you prefer. Thus, the basic rule of the rich is fulfilled – “pay yourself first”.
This fund will provide for your life in the future, in retirement, and maybe even earlier. It all depends on your income goal that you set for yourself. The main thing is to invest these funds in reliable investment instruments.
The next recommendation is to set aside 5-10% of your total income to charity. The more we give, the more comes back to us. These are the laws of the universe. You may or may not follow them. The choice is yours, because only you are responsible for your life.
We recommend distributing all cash receipts that were not planned in the budget according to the general principle. That is, to a protective fund (at least 10%), charity (5-10%), an investment fund and other funds at your discretion.
Now that we have made contributions to these two main funds, we can begin to distribute the remaining money among the remaining items of expenditure.
Unfortunately, statistics show that expenses are growing faster than income. Therefore, it is critically important to take control, first of all, of your expenses.
Ideally, you should strive to ensure that after the distribution you still have money left. They will go to your investment fund. That is, you can invest them in various investment projects to create passive income or increase your capital.
It is also useful and wise to invest money in your education and not only financial.
“What does it cost us to build a house”, we draw up a family budget
So, let’s move on to the preparation of the family budget. The budget consists of 3 main items or funds: income, expenses and investments. In a more complex version, it can also take into account the assets and liabilities of the family.
Making a family budget
The budgeting process will be as follows:
- Compiling the expenses
- Compiling the income
- Compiling the investment part
After that, you need to budget on a daily basis. And, if necessary, make adjustments. After all, the family budget should become your main working tool, and not just a formality.
Expenditure part of the budget
The first step in preparing a family budget will be drawing up its expenditure side. Sit down with your spouse and write down all your daily expenses. Write down everything that you remember. Put it in the form of a table with two columns.
|Expense name||Amount |
|Payment for housing and communal services|
|Lunch at work|
|Travel by bus|
These are utility costs, and the purchase of products, and visits to cafes and cinemas. Do not forget to add the cost of paying loans, if you have them of course.
The next step is to record your daily spending on these items. Start doing it now, don’t put it off. At what you do not need to limit yourself, spend money the way you spent it before. Do not limit yourself in any way.
At this step, statistics of your expenses are collected, which will later be used in planning. If you can immediately write down all the expense items and the amounts for them, then you can immediately proceed to the next step.
There will be only one rule: write down the amount of your expenses for each item on your list every day. Even if it is 13 🪙. You need to do this constantly.
You can define a specific time when you and your partner will sit down and enter this data. To do this, you can use a notepad, notebook, a special application, since there are a large number of them on the Internet, or Excel.
The key is to do this every day. It is very important to record all your expenses, even very small ones. No wonder there is a saying: “a penny 🪙 saves”, and also “money loves an account”.
If new expenses appear in the process of accounting for daily expenses, enter them in the table.
Spend money in your usual mode and fix these expenses for at least a month, or even two. This is how you determine your fixed or recurring monthly expenses.
The next step in the preparation of the expenditure part of the budget will be to determine your irregular expenses, that is, those expenses that you make every two or three months, or even every six months.
These are the birthdays of your loved ones and friends, insurance payments or car maintenance, and so on. Record all of them in a separate list or table.
|Expense name||Periodicity||Amount |
|car maintenance||1 time per year|
|February 23||1 time per year|
|Birthday||5 times a year|
|March 8||1 time per year|
|tire installation||1 time in six months|
|OSAGO||1 time per year|
|vacation||2 times per year|
|Anniversary||3 times a year|
|New Year||1 time per year|
|Salon||1 time in 2 months|
|taxes||1 time per year|
Your expenses should include all your possible occasional expenses such as vacations, gifts, insurance, and so on.
Now calculate how much money you need to set aside each month to pay for these expenses. So you can collect the necessary amount for these expenses in advance. For example, every two months you go to the hairdresser. A haircut costs ~800 🪙. It turns out that in a year you go for a haircut 6 times and you will need 4800 🪙 for this. Which gives a monthly expense of 400 🪙.
Next, combine these two tables and group all your expenses into groups and categories. For example, household needs, which will include the cost of paying utilities, food, buying clothes and others. Another group may be transport costs: public transport fares, gasoline and other costs associated with transport.
There are no hard and fast guidelines for categories that should be included in your budget. Create ones that you understand and feel comfortable working with.
Having done all these operations, you will receive the expenditure part of your future family budget. Now it is presented in a structured way, and it will be easier for you to plan expenses for a month, a year and a longer period. Plus, it will allow you to analyze the required size of each article.
Items of regular spending are characterized by renewal, that is, every month their size is renewed and money, as a rule, can not be saved for them. Items for irregular spending have the same cumulative nature, that is, the funds for them are accumulated before they are used.
The revenue part of the budget
Let’s move on to the revenue side. This is the simplest, but no less important part of your family budget. It is better to present it also in the form of separate categories of income. That is, separate categories for the income of each spouse. This will include income from the main place of work, bonuses, part-time jobs and other income. Separately, you need to take into account the income from your assets. They are also called passive or residual income. These include income from bank deposits, from renting, various social payments, and so on.
After you have filled in the income and expenditure parts of your family budget, we offer you to take a short test. You need to perform a simple mathematical operation: subtract expenses from income.
What result did you get? More precisely, with what sign did you get the result?
" 0 " – at the moment you have no financial problems. Your family income covers all expenses. You are great! And what will happen tomorrow? What happens if one of the spouses loses his job? We advise you to analyze your expense items in order to understand how you can reduce them if necessary.
" positive figure " – you are great. You have excellent financial prospects. The main thing is to properly manage the remaining money.
" Negative figure " – you have financial problems. Unfortunately, you are spenders. You need to thoroughly study and optimize your expenses and income. We urgently need to take control of our expenses and increase income.
Investment part of the budget
We recommend that all the remaining money, after being distributed according to the items of the expenditure part of the family budget, be directed to the investment fund or, in other words, to the investment part of the budget. You can also divide this fund into several sections, depending on the degree of investment risk: low, medium and high risk. Depending on the period that remains before the use of these funds, for example, retirement, you can change the ratio between these items.
We also recommend dividing investments by goals. For example, some investments are created to increase capital. Others – to create passive sources of income, and so on. You can create your own classification.
If you have 10-20 years left before retirement, then it is better to invest in low-risk investments for the most part. Yes, you will earn less on them, but it will be difficult to lose them. The younger you are now, the more opportunities you have to recover your capital in case of unsuccessful investments.
As a result of completing all the steps, you will get a family budget table
Savings or where to store cash
An important question in the management of the family budget will be: where to keep the money of the expenditure side of the family budget? Savings accounts are best suited for these purposes. Since accounts can be replenished and withdrawn from them, plus monthly interest is charged on the balance.
Where to keep the budget
At the initial stage of maintaining a family budget, you can open one such account in one bank. In the future, as you improve your financial culture, open similar accounts in other banks. The main thing is to develop an algorithm for yourself on how you will transfer money between accounts so as not to pay a commission for these operations.
For more information on how to choose a bank for a deposit, read the article (the link will open in a new window).
Debit operations of your budget are best carried out using bank cards as much as possible. Since this will allow you to use cashback programs, that is, make money on it.
You can keep a small amount of money in the expenditure part in the form of cash, but just a small one. Since on this amount you will not receive interest from the bank. That is, lose part of your passive income.
Family budget planning and management
After you have recorded your expenses for a month, two or three, it’s time to start planning and manage your family budget more consciously.
The result of your planning should be a deficit-free budget. That is, your income fully covers your expenses. Ideally, there is still free money that you can direct to the investment part of the budget.
There are three principles that will allow you to properly plan and maintain home accounting, as well as help accelerate the achievement of financial independence.
- Your income should always be greater than your expenses.
- Income growth must be higher than spending growth.
- The money saved should go to the investment fund.
First of all, you need to determine the exact amount of each expense item in your budget. And within a month, in no case go beyond it. Save if you need! This is a great opportunity to develop this quality of rich people.
Fix the size of expenditure items for the year, and during this year do not increase their size unless absolutely necessary. At the very least, make every effort to do so. Once a quarter, analyze your expenses and related items.
We advise you to transfer the saved funds to items in the investment fund on a monthly basis from items of regular spending, on which money should not be accumulated. This will significantly increase the rate of accumulation of money for investments.
When working with the revenue part of the budget, you need to focus on increasing its residual part, and not on increasing wages. Since, when concentrating efforts on increasing the share of wages in the income part, and in the event of a job loss, the income part will drop more significantly than if you increased the residual part. After all, it does not depend on whether you go to work or not. Strive to ensure that this part fully covers your monthly expenses.
You can distribute money by expense items either at the time of receipt of funds for income items, or at the beginning of the month. This will turn out to be a kind of lending to your budget, the main thing is to make sure that income and expenses converge at the end of the month.
So for a more detailed analysis of spending, specialized applications are suitable. For example, Getcoin or Edadil. The most interesting functionality of these applications is the download of checks and their subsequent analysis by type of purchase.
For example, after shopping at grocery stores, you upload all receipts to the application. And you do this for a month. After analyzing the information received, you will be able to understand what goods and how much you spent, and then make an informed decision on cost optimization.
You may find that you spend a lot of money on sweets. Maybe you should reconsider these costs? After all, reducing sugar consumption will positively affect your health and the health of your loved ones.
One of the solutions to simplify the accounting of your daily expenses will be the transition to the use of bank cards. Since all banks have their own applications, which, in addition to storing the history of your expenses, provide analytical information on expenses by category. And it’s absolutely free.
Read more about how to use credit cards in the article (link will open in a new window).
Getting ready for financial surprises
There are difficult periods in everyone’s life, in the financial sense in the first place. One of the spouses may be laid off at work or the company will cease to exist, then you will have to look for a job, and this will take time. How and on what will the family live during this period of time?
When you manage and plan a family budget, you have all the necessary data to calculate this scenario as well. In order to make more balanced decisions on cost optimization, especially during difficult periods of life, we recommend classifying expenses into fixed and variable, mandatory and optional.
This classification will allow you to understand which expenses can be cut first and by how much. Based on this information, you will be able to determine your minimum required monthly expenses and the amount of your financial airbag. As a result, this will help to bring your family budget into balance.
It is recommended to form a financial airbag in the amount of 3-6 monthly family expenses.
Not all expenses are equal
Fixed expenses are expenses that we make every month.
Variable expenses are expenses that we make periodically, once a quarter, a year.
Mandatory expenses are those expenses, the refusal of which entails financial losses for the family. They are also called Direct.
Non-essential expenses are expenses that do not result in financial loss to the family. They are also called Indirect.
Permanent obligatory expenses will include, for example, payment of utilities and payment of loans. Even in a difficult period of life, you should not delay paying these expenses, because, anyway, you will be obliged to pay them, plus they will also impose a fine. In the end, pay more.
Permanent non-mandatory expenses would include, for example, the cost of food or gasoline. In difficult times, you can significantly reduce them. For example, you can visit your family and have dinner with them. Just don’t overuse it. ))) Or use the car only in emergency cases, then you won’t have to spend money on gasoline.
Variable obligatory expenses would include the cost of paying taxes or paying for car maintenance, for example. In difficult times, you can partially reduce the costs of these items. Of course, everything will depend on the period when these expenses must be made.
Variable optional expenses would include, for example, the cost of buying clothes or visiting a hairdresser. The expenses of this group can be completely reduced during a difficult period of life.
"Golden mean" financial cushion
Now that you’ve made this distribution, it’s easy enough to calculate the minimum size of the financial airbag.
Let’s assume that the total family expenses are 100’000.00 🪙 per month, for ease of calculation. Of these, fixed mandatory expenses are 20% or 20’000.00 🪙, permanent optional – 35% or 35’000.00 🪙, variable mandatory – 25% or 25’000.00 🪙, variable optional – 20% or 20′ 000.00 🪙.
Let’s say you decide that in a difficult life situation, variable optional expenses can be completely reduced, mandatory variables – will be reduced by 20% or 5’000.00 🪙, permanent optional – by 30% or 10’500.00 🪙. Then the minimum size of the financial airbag will be 387’000.00 🪙 based on 6 months.
Now you know how much money you need for a financial airbag and you can calculate how long you can create it. Make a calculation according to your data.
Barn book or where to keep a budget
Everyone who asks the question of maintaining a family or personal budget is faced with the same dilemma: where to keep the budget? In a notebook or Excel or a specialized program?
Each method has its pros and cons. The main thing is to start budgeting, develop the habit of daily budgeting, and only then you will understand which tool suits you best.
It is important that in the selected tool you can plan your budget for the month, year and enter data on actual expenses. And also it was possible to account for bank accounts and other financial instruments and flexibly adjust them to suit your tasks. After all, it is important not only to take into account your expenses, but also to manage your saved money resources.
Programs and online services
At the initial stage, for someone, it will be easier to use a specialized program or an online service (specify a list of programs), since you will be able to record your expenses immediately at the time they are made and begin to form the habit of maintaining a family budget. Just select an application that supports multiplayer mode. So that you and your spouse can record expenses.
The advantages of this tool include mobility, simplicity and visibility. You can easily generate graphic reports of your budget.
The disadvantages of using applications include the fact that most of them are paid, at least if you need more advanced functionality or the number of users. Plus, customizing them for your specific tasks can be very difficult, especially in the free version. And they (specific tasks) will definitely appear as you manage the family budget and develop your financial literacy.
For example, you will start investing in real estate and you will have objects that will generate income and you will need to keep financial records for them. Keep in mind that you need to separate the family budget and the business budget.
Or you will need to keep track of the budget of a specific expense item in different banks. And many other individual tasks.
Excel or Excel or Excel – the main result
The main advantage of Excel is that it is free and that you can solve all your specific tasks. Of course, you will need to ensure the safety of this file and backup. Also, the use of Excel will allow you to better understand the nuances and subtleties of the movement of money and their accounting.
Currently, the main disadvantage of Excel – accessibility – has been resolved. You can keep a budget in Google Sheets or MS Excel and have full access to the file from any device and anywhere, even without Internet access.
Of course, when creating a basic budget form, you will need certain knowledge and skills in working with these programs. Fortunately, there is the Internet, and it facilitates the solution of this problem. But you can use the acquired knowledge in your professional field, for example, at work.
We take into account the old fashioned way – a notebook or notepad
Keeping a budget in a notebook or notepad is a less convenient way. Since, in addition to fixing your expenses and incomes, you will need to periodically spend time preparing a budget form (table). In addition, it is very difficult to do visual analytics in this family budgeting tool.
The main advantage of this tool is its autonomy, as it does not depend on the availability of electricity and the level of charge of your device, as well as the availability of the Internet.
Golden mean or strategy of use
Which tool to use is your choice. The optimal solution may be to use all the means at once to solve a specific problem.
For example, the main tool can be Excel, where you will summarize all the data at the end of the day or week and plan your budget. The application will record your daily expenses. A notebook or notebook will be a backup tool for fixing daily expenses.
You can also develop your own algorithm or strategy for using these tools to manage your family budget.
Conclusion? In fact, everything is just beginning
At the end of the article, we want to summarize tips on organizing and maintaining a family budget and share useful materials for further development.
How to manage a family budget
Councils for the organization and conduct of the family budget.
- Set aside at least 10% of each income in the wealth fund.
- Set aside % of every paycheck to charity.
- Focus on increasing the income side of the family budget, more precisely on passive income, and reducing its expenditure side.
- Record your expenses daily and analyze them monthly.
- On time, but not in advance, pay your bills. Avoid delays.
- Form a financial airbag. Hold these funds in highly liquid instruments.
- Use the opportunities provided by our legislation to return part of the money spent on buying an apartment, on life insurance, on treatment, and so on.
Read more about tax deductions in the article (link opens in a new window).
Developing financial thinking
Here is a list of books that will strengthen and develop your financial thinking. This, of course, is not a complete list of books, but the ideas that are considered in them are fundamental. Reading them will be useful for both adults and children.
- "Money or the ABC of Money" – Schaefer Bodo
- "The Path to Financial Independence" – Schaefer Bodo
- "The richest man in Babylon" – Clason George
- "Rich Dad Poor Dad" – Robert Kiyosaki
- "Cashflow Quadrant" – Robert Kiyosaki
- “124 Ways to Save Money Without Infringing on Yourself” – Alexander Levitas
- "How to make a personal financial plan" – Vladimir Savenka
- "Money. Game Master – Tony Robbins
- "Millionaire – Automatically" – David Bach
Start keeping a family budget and keep it for at least a year. You will be surprised how your financial situation will change. How predictable and calm your financial future will be. You will be able to confidently plan and have fun with your family vacation, and do it not only once a year, but also on weekends. And even without borrowing money. You can take control of your future and the future of your family. Be the master of your life. Now you know what a family budget is and how to properly manage it.