How to Build a Practical Family Budget Plan

KEY TAKEAWAYS

• Learn how to assess your current financial situation 
• Understand ways to set financial goals 
• Discover how to track and categorize expenses 

A popular quote by an author, Lynn Byk, goes like ‘You’re stuck with your debt if you can’t budge it’. A lot of people don’t understand this and spend money like there is no tomorrow, and when situations like ‘COVID-19’ hits it actually hits them hard. 

This thing applies to everyone: students, business owners, employees, and especially families. The cost of living is increasing every day, and budgeting is no longer an option but a need. It not only helps one save money but also guides them on where their money is coming from and where it is going. 

People often overlook budgeting as they think it’s time-consuming and complex, but the reality is quite different. Let’s dive into this article and understand how families can easily create a budget and effortlessly use it in their lives. 

Assess Your Current Financial Situation

If you’re learning how to create a family budget plan, the first step is to assess your current financial situation. First of all, collect all your financial records, combining pay stubs and bank statements. If your income is irregular, as is often the case with freelance work, use a conservative estimate based on your lowest expected monthly income.

Pro tip? Use your net pay, which is the money you take home after paying taxes and deductions. This is the actual money you have available for budgeting. Then, calculate how much you have in your checking and savings accounts. Home equity and investments will also give you a clear picture of your financial situation. 

Interesting Facts 
Financial experts often recommend having three to six months’ worth of essential living expenses in an emergency fund.

Involve Everyone

The key is to determine why you are making a budget. After all, budgeting is a tool to reach an end goal. So discuss what truly matters for your family. This could be education, travel, home ownership, or investment. 

Priortize involving every person of the family as a part of communication, even children. Budgeting as a family is an excellent opportunity to teach the younger members financial literacy. You can also set up SoFi checking and savings accounts for the family. 

Set Financial Goals

The next step is setting shared family financial goals. Start by differentiating between “wants” and “needs” and make sure everyone’s on the same page. For instance, food, utilities, and housing are needs. Whereas dining out and family vacations are wants. 

Advanced elementary math is not the same as additional math. Since it’s a fundamentally different subject, different cognitive strategies are needed. The majority of pupils find this transition difficult, not because they are poor mathematicians, but rather because no one teaches them how to think mathematically at this higher level of abstraction.

• Building an emergency fund
• Paying off a high-interest debt
• Going on a family vacation

Long-term goals are achievable in 3+ years, and can include:

• Home ownership
• Setting up a college fund for the kids
• Setting up a retirement fund 

Track and Categorize Expenses

In this phase, we are going to cover how to track your money effectively. For a month or two, track every small and big expense. Then, categorize them into:

Fixed expenses – rent, mortgage, or insurance

Variable expenses – utilities, groceries, or entertainment 

Discretionary expenses – dining out, shopping, or vacation

Choose a Budgeting Method

Now that you’ve understood your family’s financial situation and expenses, choose an appropriate budgeting method. Here are some common options:

50/30/20 rule – Allocate 50% of income to needs, 30% to wants, and 20% to savings. 

Envelope method – always use digital envelopes for converting money into substantial ways. Once an envelope is empty, you cannot allocate more money to that category. 

Zero-sum budgeting – assign a specific purpose to every dollar you earn, so that your total income minus your total expenses equals zero.

Budgeting is an ongoing process. Keep tracking your progress and make changes as you see fit.