How to plan and maintain a family budget?
In order for the financial situation of the family to be stable and its members to be able to afford the necessary expenses, it is necessary to plan the family budget. Indeed, regardless of the level of income, the family may experience a lack of money, since they will be spent uncontrollably. Therefore, you should plan your family budget so that the flow of money is transparent and orderly.
Why do you need to maintain a family budget
The family budget is all the income and expenses of a family that are present in a particular family.
Family budgeting is not an overkill, but a real need. So why do you need to keep a family budget? The answer to this question is simple, because constant monitoring has the following advantages:
- a real picture of finances is created – how much was spent, how much was earned;
- expenses can be ordered, broken down into categories and types;
- unplanned expenses are identified that are not taken into account in most cases;
- budget savings are observed;
- savings for holidays, substantial purchases, training are formed from the saved funds;
- family microclimate improves as money is freed up.
With budgeting, calculations, and records, you can save money in case your financial situation worsens. For example, the need for medical treatment, the purchase of expensive goods or sudden trips require significant funds. Having savings, a family can finance all items of expenditure without any special difficulties.
It is necessary to plan the family budget regularly, comparing different periods. Before each new period of time, a new plan should be developed, usually when receiving wages.
Family budget allocation
Before writing a family budget, which will spell out the level of income and expenses, important areas for the use of funds, you need to figure out what distribution schemes are. They allow you to determine the basis for budget planning, the characteristics of savings and the proportion allocated to various needs.
This is one of the most common money management strategies, in which there are not many categories, and there are only three directions of spending. Half of all budget revenues, the creators of the strategy, Elizabeth and Amelia Warren, recommend directing to basic financial needs.
- payment for housing – rent, if you don’t have your own house, utilities;
- buying food;
- purchase of items of clothing and essentials;
- transportation costs – gasoline for a car, payment for public transport.
30% of all income should be allocated for optional spending. These are entertainment, visiting cinemas, restaurants, tourist trips. Money is for purposes other than half of the cost and can be deferred.
20% of income, as the personal experience of financiers shows, should be spent on loans and debt settlement, if any.
The family saves the remaining money, or the entire amount in case of freedom from obligations, forming an accumulation fund.
This strategy is similar to the previous one, since it involves the distribution of 20% of income for a rainy day and settlement with obligations. The Pareto Rule, as this family budget is called, assumes that 80% of the profits are directed to all other needs. These include both mandatory and optional expenses, but this plan has its drawbacks.
20% is not always enough to pay all debts, and 80% that remains for current needs can be spent incorrectly. Without a specific breakdown into categories, the risk of unplanned spending is high, so the previous 50/30/20 strategy would be preferable.
Method 3.3-6 months
This family budget planning technology does not imply a specific division, but is aimed at creating a safety net. According to the rule, the savings should be enough for the full maintenance of the family for six months. A decrease to a threshold of three months is possible.
This will allow not only to determine the level of monthly spending, but also to form a stock. It should be used only in emergency situations when the lack of funds can lead to negative consequences. Rather, this rule applies to additional ones. Since the savings in the amount of 20% of the income obtained in the previous money distribution strategies can form just such a fund.
How to make a family budget – step by step recommendations
Planning expenses and accounting for income is not as difficult as it might seem, especially if you have grafted financial literacy.
Step 1. Setting goals
Accounting without a goal is unproductive. Because psychologically, a person must understand why he limits himself in spending and controls them. Therefore, first of all, it is necessary to determine a number of goals that the family will achieve while saving money.
Step 2. Determination of the material base
This stage is characterized by the fact that within its framework the structure of the family budget is assessed. First, a list of all sources of income is compiled, permanent and additional profits are separately highlighted.
Step 3. Tracking spending
Even having identified the tasks for which the money and the amount of profit are spent, it will not be possible to immediately think over the future budget. To do this, you will need the same Excel table in which all expenses for the month will be entered. This means that all the amounts are entered into the accounting of expenses and receipts, on the basis of which it is possible to find out how much is spent on housing, food, clothing and other directions.
Since there are ready-made examples of family budget planning tables on the Internet, allowing you to understand how to create your own, you can download and use them, adjusting the content as needed.
The main purpose of the preliminary study of the financial situation is to clarify the structure of expenses and their percentage of the total amount of profit. All the information received will make it possible to adjust the budget, discarding unnecessary costs, or increasing funding for priority areas.
Step 4. Determination of vital needs
A lot of money is spent if a person does not know how to separate needs and desires.
Needs are what a family spends money on to ensure livelihoods and a normal life, while desires are unplanned.
Refusal from the latter does not lead to a deterioration in the quality of life of all family members, and the fulfillment of desires is not a priority.
If you are not sure of the need for a purchase, you should postpone it for a period of 2-3 weeks. In the case when during this time the desire to spend money has not disappeared, you can buy a product, since the necessary waste arises.
Step 5. Financial plan
Before entering information into the table, it is necessary to reduce the items of expenditure that have been identified as secondary. This is discussed within the family, and it is important to hear the views of each member of the family. Since the main task of the financial plan is to optimize the family’s cash flows and minimize debt risks, it is important to make sure that after deducting expenses from income, the figure is at zero or with a plus sign.
If home accounting shows that income does not correspond to expenses and a minus value is formed at the end of the period, then it is necessary to reconsider expenses. You can try to find additional work, but you will need to increase spending only after it appears.
Step 6. Entering the result
The table should include the already correctly calculated and approved version of the budget, which has undergone family revisions. Each article should have a separate column, or better – a sheet. To switch between them, you can see the plan for each month, the details of income and expenses, the current progress of the planned implementation.