Budgeting Tips for Families

Managing money seems tougher than ever these days. Rising prices, skyrocketing interest rates, credit card balances that never get smaller … it’s a full-time battle for most of us and if you’re managing a family, it may seem impossible.

Sitting down to do a budget? Who has the time? And if you have no money, what good is a budget anyway, right?

The reality is that if you want to successfully manage your money, a monthly household budget is essential to get your family’s money challenges on track, both immediate ones and long-term. Budgeting will help you manage money better, ease stress – both financial and physical – pay bills you may be avoiding, pay down debt, and even save for the future and emergencies.

A budget is simply a way to keep track of the money that comes in and managing how it goes out. Including the kids in the budget discussion will help make it work.

Let’s break it down into 10 budgeting tips for families that will help you build and maintain a strong financial foundation for you and your kids.

1. Create a Family Budget

All budgets start with a list of monthly income and expenses. It’s a plan for how that income will be used to pay the bills, as well as achieve future goals. How to make a budget, though, is up to you. You can use software, an app, a spreadsheet, or just a legal pad and a pen. There’s no wrong way. The best monthly budget method is the one that you’ll stick to.

A recent survey found that 84% of Americans who budget said they regularly overspend. If you’re spending more than what you’re taking in, the budget isn’t working.

Be sure that you have all the financial information you need, it’s accurate, and that you’re realistic when you set budgeting goals. You’re not chiseling your budget in stone. Assessing it monthly and making changes as needed is essential, as long as your goals are still being met.

To get started creating a family budget:

• Write down total income, including all money sources that will contribute to paying the household expenses. If your income is irregular, find the monthly average and use that for a starting point.
• Write down all household monthly expenses. Go through your checking account and round up your bills to be sure everything is included. Some expenses are fixed (the same every month), such as mortgage or rent, vehicle payment, insurance and cable. Others fluctuate – groceries, gas, credit card payments, electric bill, heating oil. Find an average by going through six months worth of each expense, adding them up and dividing by six (or whatever number of months you’ve gathered).
• Subtract expenses from income. If you come up with zero or less, that means you must reduce expenses. (We’ll discuss that later.)
• Create a budget document that lists the income and each expense. Make non-fixed expenses, like food and gas, something realistic that you can stick to. Include money for savings. When deciding how much money to put toward items, be sure that you’re accounting for all of your family’s monthly needs, as well as future goals.

That, in simple form, is your budget.

The digital world makes it easy to track spending and expenses. Your online bank account will show what you used your debit card for and what bills were taken out of your account. If you’re a member of a supermarket rewards program, your specific purchases may be listed in your online account.

Your bank account will also show your income deposits. If you have an online payroll account through your employer, that’s another way to track income, as well as deductions and your retirement account deposits.

There are a lot of resources available online to help you budget. The federal government webpage mymoney.gov offers budgeting tools and resources. Your local bank or credit union may have a similar page.

There are many budgeting apps, websites and software programs available. If you use one, be sure it’s free, it helps you plan spending as well as tracking it, and that it’s easy for the adults in the family to access and use. Be sure to check the reviews, particularly the one-star ones, to make sure the app will work for you.

Many online budgeting tools require that you input all of your accounts and link to them. If you use one, be sure you’re diligent in the setup, and include all of your accounts, or you won’t get accurate information.

Managing your money and building a solid foundation for yourself and your family is one of the most important things you can do. Even though creating a budget may seem like a lot of work, it’s worth the effort.

. You may want to shield your kids from the harsh realities of the family’s financial situation, but getting the kids involved is an important aspect of family budgeting. They don’t have to know all the grisly details, but experts say that the earlier you start talking to kids about money and spending, the better habits they’ll build. Another benefit is that if your children feel that they’re part of the decision-making process. When given agency and a mission, kids generally jump on board and might be the best budget advocates in the house.

2. Track Your Spending

Tracking spending is essential to sticking to your family budget. It’s easy to ignore bad spending habits when you’re not paying attention. Once you are, you can identify patterns and make adjustments.

As you track spending and manage money better, you’ll learn to control your money, rather than letting it control you.

This is another area where the digital world makes things easy. Budgeting apps are great for tracking. Depending on the app, you may even get notifications when you exceed a certain amount in a category. Keep in mind that some apps come with fees or subscription costs.

You can also use a spreadsheet, find free budget workbooks and tools online and write down spending in an online doc. Or, just use a pencil and paper and cross off bills as they’re paid, or write down expenditures, subtracting them from the balance.

Some tips to track spending are:

• Set up auto payment for as many bills as you can. Set them up to automatically come out of your bank account on the same day (the first of the month, for instance), so bills aren’t coming out throughout the month. Just be sure the money’s in the bank on bill-paying day.
• Set up a separate checking account, with its own debit card, for groceries, or groceries and gas. These can be the biggest budgeting challenges every month. Having a separate account makes it easier to keep an eye on spending.
• Join a grocery and/or gas rewards program. Many of these have apps that show every purchase. You may be surprised at your spending. (“I bought a $5.99 bag of M&Ms three times last month? Holy cow!”)
• Limit discretionary spending like grocery trips, gas fill-ups and entertainment or eating out to certain days of the week, or even one day.

No matter what tracking method you use, get the kids involved. Maybe you’ve budgeted a certain amount a month for fast food. Write the total at the top of a whiteboard. After a fast-food trip, have the kids do the math (or help them do it), and record what was spent and how much is left. Discussing how to use the money (Takeout pizza twice a month? Expensive wings once a month?) will teach them how to make spending decisions.

3. Prioritize Essential Expenses

Keeping a roof over your family’s head, the lights on and food on the table come first when budgeting. Prioritizing essential expenses is key to creating a budget that will keep you afloat.

Your budget should be clear on which expenses are “needs” and which are “wants.” (This is a great discussion to have with the kids.)

Every family has four basic needs: housing, food, transportation and utilities that keep the home livable (electricity, water, heat, etc.) Wi-Fi has become a necessity for most people, both for work and for engaging with services or the community.

Wants are expenses that support those needs. Cable service may be a utility, but you could live without it if you had to. Eating out, travel, a beer after work – many of the things you take for granted as “needs” are actually “wants.”

Your budget may mean tough choices in order to pay the rent or utility bills some months. That’s why sticking to a budget is important. Don’t take money from needs to pay for wants, or you may not have enough for groceries or the rent.

Paying necessary expenses immediately ensures priorities are covered. Having a separate bank account for necessary bills is also a good way to make sure they get paid.

If you are scrambling to pay necessary, priority bills, it’s time to sit down as a family and discuss how to cut expenses.

4. Cut Down on Unnecessary Costs

Cutting down on unnecessary costs is a hard discussion, but it’s another opportunity to involve the entire family. When people feel they’re part of the decision-making, it’s easier to let things go. Some decisions, though, will be up to the adults.

The first step may be to revisit the “wants” and “needs” discussion and see if there is room to eliminate more.

If you haven’t already, do a thorough audit of subscriptions and get rid of ones you don’t use or that you can live without.

Electricity bills can really spike in the heat of summer or cold of winter. If you live in a hot region, see if you can live with less AC, and cut down on it. If you live in a cold region, see if you can turn down the thermostat and bundle up. Drying clothes on a line can reduce an electric bill enormously. Making sure your refrigerator is operating correctly can also save money.

Shop around for a grocery store that has a rewards program. Some give discounts or even money back when you buy store brands, and also provide coupons digitally. The Mitchell family, who live in Maine, are members of their supermarket chain’s rewards program and every quarter they get cash back for buying store brands.

Rebecca Mitchell, who cares for a teenager and two elderly parents, said she gets about $30-$40 back each quarter from her supermarket rewards program, with the highest amount $58. “When I get the rewards, it really helps with that week’s grocery bill,” she said. “It may not seem like a lot, but it makes a difference. It puts a little slack in the budget.”

Grocery spending can be the biggest challenge for a family, and the hardest place to cut costs. If your rewards program lists specific purchases, go through those with the kids and discuss changes, or meals you can make, to reduce what you spend.

Listing the things you didn’t spend money on and how much you saved can be a great way to see the benefits of your sacrifice. For instance, let’s say you enjoy a $3.75 vanilla latte three days a week at the local coffee shop. Instead of buying the coffee, make a chart for it and write down $3.75 for every day you would’ve bought one but didn’t. If that was 12 days in the month, you’ve saved $45. Seeing that in black and white may be the motivation you need.

There are a lot of ways for families to cut costs and still have fun. Making meals at home and limiting snacks to a special day of the week can reduce grocery expenses. Going for walks, or to the playground, instead of the movies or a fast-food restaurant, adds quality time as well as money to your budget. Jigsaw puzzles and board games are fun, and also encourage much more interaction than many activities that cost money. Libraries, even in small towns, have movies and games to lend for free, as well as free programs for kids and adults.

5. Set Financial Goals

The family budget isn’t just about paying monthly bills and keeping a lid on spending. It’s also about financial goals, both short-term and long-term.

Every family budget should prioritize an emergency fund. The rule of thumb is to save 3-6 months of expenses. Don’t panic, though, if you can’t do that immediately. Every little bit helps. Budget an amount every month, whether it’s $25 or $250, or whatever you can afford.  Deposit it, and don’t touch it.

Savings for other purposes are also important. Goals may be a vacation, retirement, a college fund for the kids, money on hand for a new car when the clunker dies, or a down payment for a house. Paying down debt may also be a goal (and should be if you have a lot of it).

How will you achieve these goals within your budget? What’s the timeline? Can the amount and timeline be adjusted in the future if your financial situation changes?

The adults in the family should discuss goals and where they are on the priority list. Reaching those goals should be realistic and manageable. There are many formulas for saving, including putting a percentage of your income into savings. Don’t feel that you have to follow someone else’s rigid formula. Figuring out what works best for you within your budget is the best way to stay on track.

If the budget allows it, squeeze in something fun for the kids that they can contribute to as a way to get them involved in budgeting and saving. Maybe it’s for a vacation, a specific purchase, or just a “fun fund” that they can discuss what it will be spent on as it grows. They can learn about delaying gratification, and comparing less expensive wants to expensive ones. Create a chart they can update as their funds increase.

6. Involve the Whole Family

We’ve mentioned ways to involve the kids in the family budgeting process. Don’t discount the importance of it. No matter their age, including children has many benefits.

From a practical standpoint, it encourages cooperation. They’ll be more willing to make sacrifices if they are included in the decisions.

The bigger benefit is that teaching kids about money will build financial literacy that instills good spending and saving habits that will benefit them throughout their life.

Some ways to get the family involved in the household budget that will also build good habits and contribute to financial literacy:

• Hold monthly budget meetings. Always have some positives to discuss, even if tough decisions are being made, particularly if the kids are young. The month’s wins can be a great topic. Did a child help pick out a healthy, cheaper snack at the store? Agree to give up a fast-food outing in favor of making a meal at home?
• Seek input from the kids and listen to what they have to say. If you don’t agree with them, have a respectful discussion about it.
• Have kids help with the grocery shopping. Bring them with you to the store and discuss what you’re buying and why. Have them help with purchase choices from the perspective of good financial decisions.
• Give younger kids an allowance if you can fit it into the budget. Agree on a portion that will go into a savings account. Bring them to the bank and let them deposit the money themselves and have them track the money as it grows. Discuss how they’ll spend what they
• Older kids can contribute to expenses, or their college fund, if they’re employed. Or they can pay for their own clothes and entertainment. Find ways to give them some say in some of the household’s decisions if they’re contributing.
• Be a role model for mindful spending. Have a “no impulse buy” rule for everyone in the household. Instead of making a spontaneous purchase, have a “cooling off” period (3-7 days) during which the pros and cons can be weighed.

7. Use Cash for Discretionary Spending

We’ve talked a lot about how much easier the digital world has made budgeting. But there’s one trick that goes back to pre-digital days that can be effective, both practically and psychologically, when it comes to curbing spending – use cash for discretionary spending.  When you have to count out cash, rather than whip out a card, you see the actual money leave your fingers. It’s easy when using a card to ignore the fact there’s a limited amount of money at the other end. If it’s a credit card, that can be financially disastrous.

Using cash forces you to acknowledge your spending in real time. Spending becomes mindful, rather than mindless.

One budgeting trick from the olden days has gained a new following: the cash envelope system.

The cash envelope system is simple:

• Label separate envelopes for each discretionary spending category: food, gas, eating out, clothes, etc.
• Put the monthly budgeted amount of cash in each envelope.
• Spend for the category out of the envelope, writing on it how much you spent and what you spent it on.

The method may be hard to get the hang of if you’ve used credit cards most of your life. Be sure to have the envelope with you when you need it. If you don’t have it, don’t make the purchase until you do, if possible.

There are envelope apps that serve the same purpose, but using real envelopes and real cash is the key to paying attention to your money and spending. If you don’t have enough money, or too much, in an envelope at the end of the month, adjust your budget for those categories.

8. Automate Savings

While old-school cash is a great way to curb spending, diving into the digital age is the best way to stay on track when saving money.

Having money go directly from your paycheck to a savings account, before you even know it’s there, means you don’t have to make the decision yourself. This helps you to be consistent and stay on track.

There are a lot of ways to engage in automatic savings.

If your paycheck is direct deposit at work, have a portion go into a savings account. You can also set up an automatic transfer from your checking account to savings. With most banks, it takes just seconds online if both accounts are at the same bank.

There are also apps that help you save by rounding up purchases to the next dollar and putting the difference into a savings account.

Whatever automatic savings method you choose, make sure it’s “set it and forget it.” In other words, once you’ve set up the account, you don’t have to do anything but save every month.

It may be hard if you’re living on a tight budget to not dip into savings. If this is an issue, there are many ways to make savings less accessible. For instance, open an account at a bank where you don’t have any other accounts, don’t link it to your regular bank, and don’t get a debit card. This forces you to physically go to the bank to make withdrawals. (Be sure that your emergency fund is an account you can access when needed.)

Once you’ve accumulated some savings, you may want to put it into a certificate of deposit account. CD accounts don’t allow withdrawals for a certain amount of time, usually 6-12 months. When the term ends, you can roll it into another CD. Another benefit is that they have higher interest than a traditional savings account.

Your bank or credit union may also have specialty savings accounts where you can sock away money for retirement, college, or a home down payment. Many also have “Christmas Clubs,” or similar programs, where you put a specific amount in every week, or month, and it becomes available in December.

However you save, check fees and make sure the account serves your purposes before you set it up. Then forget it.

9. Plan for Irregular Expenses

No matter how carefully you budget, there are going to be surprises that will cost money. Your family budget must make room for irregular expenses like car repairs, medical bills, your sister’s destination wedding, holidays, birthdays, or anything that’s not an emergency, but not something that’s a regular monthly expense.

Some of these expenses are truly unexpected, some are simply irregular. Either way, you can plan for them. Planning and anticipating irregular expenses will help you navigate them without a big budget hit.

Your budget should include an unexpected expenses account that is separate from your emergency account. It may stretch your money to its limits to have one more savings account, but it will pay off when you need the money.

Another savings account isn’t the only way to prepare for irregular expenses. You know that you’ll likely spend more during the holidays, or for someone’s birthday. Your sister did give you notice about her wedding. If you live in a northern state, in October you’re going to need $1,000 for snow tires.

You know it’s coming, so adjust your budget in advance to accommodate it. Understand your budget and identify flexibilities, so you can plan ahead within the budget to cover irregular expenses.  This may mean cutting expenses for a few months, or temporarily recalibrating amounts going into savings or paying down debt. Since it’s your unique budget, you know best how to make those temporary adjustments in ways that won’t have a negative impact on priorities or other bills.

10. Review and Adjust Regularly

Your family budget is not chiseled in stone. Review it regularly and make adjustments when needed, always with your family’s needs, priorities and goals in mind.

Things change, no matter the size of a family. Income decreases or increases, expenses change. Family size may change, too. If you’re successful at paying down credit cards, you may have more money for savings, or to get a car that doesn’t require repairs every other week.

A monthly family budget meeting will help you manage changes, stay on track and keep the kids on message. The adults in the family should do an overall assessment periodically, for instance quarterly. Schedule budget meetings and stick to them. It’s easy to let life get in the way, but few things are as important as your family’s financial foundation.

Closing the Budget Loop

Family life is a busy life. Don’t let it get in the way of creating a budget, sticking to it, and staying on top of changes.

It’s easy to lose track of where the money is going. Remember the survey at the beginning that found 84% of Americans with a budget overspend? It also found that 44% use a credit card to cover additional expenses. Maintaining high credit card balances can skew a budget, if not blow it up.

There is no downside to having a monthly family budget. The work you put in will pay off in countless ways.

Some of the biggest benefits of budgeting are:

• A clear picture of how your money is being spent
• Control of spending
• Identifying and working toward goals
• Identifying financial challenges and strategizing on overcoming them
• Easing household stress and anxiety
• Opening discussions on money, values and goals
• Building a firm financial foundation for kids

Don’t wait to create a family budget. You can start on these family budgeting tips today. Gather your financial information, go over it with the household adult partners, then hold a family meeting and start budgeting. The sooner you do it, the sooner you will see the rewards.