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The Family Budget Process
This brings us to the family budget process. We might ask questions like:
Insights around the tools and techniques of family budgeting could also be useful:
Stay tuned for more…
To get us started and in order to set up a monthly budget, follow these five easy steps:
Step one: find out your monthly take-home pay
Step two: find out what your expenses are
Step three: find out how much you spend on each expense
Step four: see if your monthly expenses match monthly take-home pay
Step five: Balance your budget. This means in your family budget you need to ensure that you are spending matches take-home pay. It might indicate that you have to cut back on spending to balance.
It sounds too good to be true and too simplistic. However, in the end, that is all there is to this family budgeting process! Initially at least. Let us look at these steps one at a time.
Your income is your pay, after some money is deducted. Think taxes, insurance and Social Security. Answer the following questions:
What is your monthly take-home pay? Do other people share expenses in your home?
As mentioned before, total all of the households’ monthly take-home pay. This will include all sources of income for all contributing members of the household.
This brings up other pressing questions:
What are your monthly expenses? Where does the money in fact go every month?
Most people are surprised to learn that it may go for things that we do not need at all. Writing your expenditures down provides us with the unique opportunity to visualize and find out if any money goes for things that we do not need or want.
Here is a short list of expenses that many people have. Put a check mark next to ones you have, then write down any expenses you have, that are not on the list.
§ Necessities like food
§ Clothes laundry dry-cleaning
§ Car and transportation expenses: gas, oil, parking, license, plates, car repair, train fare or bus fare
§ Rent, mortgage payments, heat, electricity, phone, water, property taxes, house repair, appliance and repair, furniture, small items for home, cleaning supplies on the yard care,
§ Medical and dental expenses: doctor, dentist, drugs, hospital or clinic.
§ Savings: short to medium term for something soon, a future purchase, emergencies, investments.
§ Installment payments: car, furniture, appliances, charge accounts, credit card accounts, loans.
§ Pocket money, personal allowances, tobacco, beer, wine and hair care.
§ Entertainment, movies and eating out Recreation, sports and equipment, club membership, newspaper, magazines, cable TV, records and tapes, DVDs videos and other multimedia, vacation, letters and postage.
§ School bills, books, room and board at school, workshops, special training courses, lessons, music and more.
§ Donations: church or synagogue, charitable giving, charities, other and gifts
§ Insurance: (if not deducted from your pay check): life, health, house, car and property
§ Taxes: (if not deducted from your pay check): Federal, state and local income, social security
Which other ones could you list ?
This is the hard part, where some thought and effort will have to go into the process to ensure the most accurate information is recorded. This will give a realistic and real-time estimate that is reliable and accurate.
In this section, you need to ask yourself how much each item on your list actually costs how much each item costs you a month.
The following estimates and guidelines could prove helpful to you as you set up your family budget: § Monthly bills that stay the same – car and rental payments
§ Monthly bills that change – utilities, phones and more. Find costs per month for say six months, add them up. Take this number you have calculated and divide it by six (the amount of months) to get your average cost. This is the number you will be using for your budgetary exercise.
§ Bills that come every three or six months – the number for every month will be used in your budgetary process.
§ Bills that come annually, meaning once a year – divide the amount by 12 months. The answer is your monthly budget number.
§ Bills that come more than once a month – food, gas, lunch and family fun. This is a category to watch very closely, as it is a contributor to this “bottomless pit”, we sometimes feel and see our cash disappear into.
§ Unexpected expenditures or surprise bills – what you can afford to set aside as a buffer or emergency, contingency fund - (look at the last three years or so and see what kind of unexpected expenses you and your family faced). Use an estimate that makes sense to you and divide the annual number by twelve months to get your monthly number.
Compare your total expenses with your take-home pay. A couple of results and scenarios could be staring you in the face:
Positive result: Income more than expense – you can either spend or save!
Negative result: Expense more than income – spending more than you have, you might have to cut costs and try to save some money to cover the bases!
Whichever of these outcomes you are faced with, knowing is better than not knowing. For some this might bring little comfort and relief, but people in general, find this exercise useful to make an unknown more measurable. It makes us both accountable and wanting to act, faster and that sense of urgency and momentum is just what the family budget process needs!
Earlier it was stated that a good budget would mean income would be equal to expenses. Having a small surplus is no guarantee by any means. You might need this to cover and unexpected rise in oil and gas prices or a larger grocery bill due to a party you are hosting at home.
This almost brings the concept home of a sliding scale, flexibility and discretionary buffer categories in budgets to absorb this give-and-take roller-coaster ride that is family budgeting.
The good news is whether you are in the red so to speak or just scraping by, managing to save nothing or maybe a little, or even a lot, this process will highlight areas where your attention is needed right away. It gives direction and purpose and assists families to formulate their spending plans, goals, re-visit their needs, dreams and goals.
Balancing the budget is no easy task. Here are a few steps that we can suggest to make your life a little easier:
A word to the wise: Do not make cuts in your budget that you cannot live with in real life. It is extremely important to remain realistic and keep your real-time expenses and living realities in the forefront of your mind when you make these decisions.
If you’re getting out of a situation where you are in debt and short of cash, you have to try to curb spending any way you can. Cutting those expenses are crucial, not only because you are over budget.
We mean that there might be other reasons, like adding a budget-line to your overall planning for your family vacation. Realistically, we cannot add and address new needs and goals before we have fulfilled our duty and responsibilities.
Cutting a little here and there will mostly do the trick – cancel that newspaper subscription for the papers that just land in the recycle box or garbage anyway. Do you need all the specialty channels and packages on your Cable TV options? Can you live with giving some up?
There is always the specter of rising prices and interest rates, inflation and more to cope with as well, so building preparedness for that into your budget is also a priority. Whatever we can do to cut our costs and expenditure will benefit our pocketbooks and family budgets immensely!
Cutting back on things you need the least is a good starting point if you are at a total loss as to what and how to give something up, add a new line into your budget or plan for the future or inevitabilities. You are well on your way in the family budgeting process. You are doing it, every step of the way. Consolidate and re-visit your budget often – it is a dynamic process and ‘living’ document or tools so to speak to help you keep your fingers on the pulse of your financial situation.
Another useful strategy is to set up a bill-paying plan and process that will protect your interest. When, how and how much you get paid will all influence your course of action. Creative and innovative allocation of your paycheck is the key.
If you get paid once a month, the amounts in your budget will have to be paid monthly as is.
If you get paid twice a month, divide each budget item by two.
If paid bi-weekly (as is mostly the practice these days), still divide the monthly amount by two – it will not be the exact amount to plan for, but a rough and close estimate. In the end better than nothing! If you are paid weekly, divide each budget item into 4. Cash flow management will form a big part of your fiscal strategy, once you have put your budget pen to paper and mapped out the needs and requirements. Utilize your cash, checking and savings account (if applicable) to pay for expenses. Do not pay your bills with your credit card!
Keep track of all your discretionary spending. A financial diary for a week is always a good idea to scribble down in every time you withdraw money, pay for something or open your purse without thinking.
This will provide you with insights you did not have before on where the money actually goes. It will also carry within it, clues to adjust budget lines if actual cost is higher on certain items. Spending patterns and behaviors will emerge that might surprise or shock you!
Having some wriggle-room and discretionary spending is always motivation. The occasional treat and indulgence, special night out or other family activity is that more enjoyable, if you know you have worked hard to earn it and deserve a pat on the back for all your fiscal responsibility and discipline!
Always keep one eye on the future folks… budgets might need to change again and again for a variety of reasons. You can never feel you have “arrived” completely and that your budget is set in stone. Family and life often throws us a curve ball or two, banks, service providers, government and fate sometimes do too!
Changing budgets should not be a source of frustration for you; it actually shows you that your family budgeting process is actually working. It is a real-time pulse and mechanism to capture these changes, which will leave you prepared and informed, ready to act and respond appropriately. This impetus for change can come from different sources.
Here are some examples:
Change of income, goals, rising prices, goals reached, family growing, moving and or relocating to a new place, family getting smaller, new spending habits, change in lifestyle or unplanned expenses.
If you can stick with it and see it through a family budget can help you meet your goals, get and stay out of debt, pay your bills on time, every time, keep track of your spending, cut costs and stretch your dollar to the max!
HINTS, TIPS, TOOLS AND TRICKS FOR SETTING UP A FAMILY BUDGET
“Creating a budget” captures in its expression and meaning, both the excitement and the apprehension most of us feel when we have to face our financial situation and or lack of planning and accountability in that area.
Most businesses would fail if they ran like we manage our household incomes sometimes. This is not a natural thing for people to want to do. It falls into that ‘I will if I really have no choice’ kind of categories.
However, worth mentioning is that we spend most of our waking hours at work, earning the cash we need to get by and cover our living expenses. Then, we do not take the time to plan what to do with it. We just respond, spend and move on, spiraling, circling around, aimlessly and oblivious mostly about the state of our financial affairs.
This is obviously not true for some of us, for whom planning and organizing comes naturally and budgeting is like second nature and breathing, we just do not think about it, get it done and then barely spare it a second thought. Both these types of approaches can hurt us in the long run.
Our society has also become so fast-paced and focused on success, that we sometimes lose sight of the future perspective, enjoying life and what we do have. We cannot really focus on our own financials for lots of “excuses”, sorry reasons we provide like: trouble slowing down, taking a step back and evaluating our financial situations or not knowing how to set up a family budget.
One of the first hints or tips we provide is advocating fiscal awareness. This means evaluating openly, freely and honestly where things are at today for your finances and household.
The whole purpose and goal of creating or setting up a family budget is to enlighten and alleviate money pressures. Utilizing a tool that can assist you in getting back onto the road to financial freedom, fiscal responsibility and financial, budgetary health, positive cash flow, with money to spare would be the ideal work-tool to grasp and grab! As the previous pages have shown the process in itself is not altogether that difficult.
You can certainly see how this real-time, ‘dollar and expenditure tracker’ can assist you to be agile and respond to market, family and monetary pressure, changes and crises. Continue to revise and update your budget as your needs, family and circumstances change.
Money is such a daily necessity and ever-present in our comings and goings. There is no escaping it. It is everywhere and needed anywhere and all over. We have different currencies, structures, procedures and all around the world, but in the end, it is the currency that makes the world go round, fueling the global economy.
Seen from that perspective, we often feel that taking control of our own finances and expenditures will not have much of an impact, as we are all at the mercy of the wheels and gear of a churning economical machine, with government and banking rules, regulations, trade and principles, ethics and decision-making that affects our quality of life. However, this is simply not the case!
Good money management skills in the household is crucial, not only for survival and good financial state of affairs, it teaches our children how we think handling money should be taken care of. They watch us so closely.
We model certain behaviors, spending patterns, discipline or maybe throwing all caution to the wind with credit card spending, debt and reminder notices all over the house, creditors calling, afraid to walk to the mailbox to remove the bills, and more.
What chance do our children have to end up entangled in that spiraling and vicious circle we spoke about earlier? Money in, money out?
How do we get to the point where family budgeting is a learning tool to help us teach our kids to work better with their funds? Whether through allowances, mutual savings goals, their own account or more, as parents we have an opportunity to instill some solid financial skills early on in life that will assist them later, as they work toward their independence and family budgets of their own!
Do some of your own soul-searching before you start your budgeting process. How motivated are you to plan, set-up and stick to a family budget? Would you do it now? Today? If you knew how?
Then let us get started, together. There are lots of practical suggestions for setting up a family or household budget. We will never be able to cover them or the mechanics and intricacies all here at once. You will however continue to find in these pages valuable insights and tit-bits to help you pursue better fiscal management and cash flow, budgeting in general.
It is all about making your dollar go further. Investing in the time and effort that it will take to get to that point of greater financial security and possibly even have a surplus eventually!
1: Take stock and face the facts head-on, honestly and with serious commitment, drive and purpose. Assessing your own capital worth and analyzing your home life and situation from a financial perspective is of utmost importance.
2: Plot your own course. Formulate some financial goals and lay out your own roadmap on how to get where you need and want to be financially speaking.
3: Take a thorough, critical and factual look at your fiscal situation and status. Unbiased and honest is best. Get a most recent credit report and look over your bank and credit cards statements, tax returns and other financial sources of information: stock portfolio, RRSP’s and more.
Get a financial planner to assist you if you are unsure about what to use and include or not in this assessment. You might also want to take a broader perspective and discuss retirement, priorities, insurance needs, will and testament and more, because, like financials, we never seem to take these crucial life planning tasks and to do very seriously and barely give them second thought or time of day! The time is now and the place is here to take control of your financial situation and life.
4: Committing the time and effort to build your financial action and spending plan, budget and goals should get priority and might just be the most valuable undertaking and time well spent, not wasted you might ever set aside!
5: Think of how you define your own financial worth. Reflect on what it is, what you base it on. Is it concrete data and fact, perception or maybe even a wild guess or estimate? Income, savings and all of your other assets work together to give you the whole fiscal picture.
This side of the balance sheet for most people remains fixed and is relatively easy to do, when they put their minds to it.
6: Always remember that this process and document known as a family budget is only going to be as good as the data and updates you provide! When acquiring new assets, ensure that this side of the balance sheet is strengthened appropriately!
7: Adjust your focus slightly to more in-depth and longer term. We live so much in the moment, especially if we purchase things or spend our money. We just look at the cost today and do not think of interest over time and this being the total cost of course.
8: Actually setting financial goals will also energize you, give you a reason to work towards something meaningful. You might even start to enjoy uncovering opportunities for frugal choices, ‘penny-pinching’ and what we prefer to call creative savings techniques!
9: Become financially literate and master the family budget process, tools and worksheets, spending logs. Demystify some of the complexities and just try some fiscal responsibilities, without being overwhelmed by the intricacies of calculations and more.
Remember, there is always professional help out there, once you have gotten started, completed the grunt and groundwork to move in and on to a comprehensive consultation with a personal, professional financial planner, who can explain the lay of the land, impact of your situation and plan in more detail. Most of them will offer the first consultation free to assess your situation for you. Most of them utilize state-of-the-art software and technology industry-related and customized tools that shed light on even the darkest situation, to find a little ray of hope and a couple of dollar at the end of the tunnel. There is a way out of the abyss.
10: Family budgeting can be used to teach you good fiscal habits: get in the habit of paying in cash, using your credit cards only for emergencies.
Learn how to stop buying on impulse and use your willpower to walk away, say no thank you and leave it at that. Shop at wholesale and discount department stores. Respect your budget limits and stick to it. Buy generic medicine and support your discount pharmacy.
Always try to find ways to supplement your income, part-time jobs, your own business or rent a room or floor in your house, offer storage, invest in real estate and take in a boarder or tenant.
Turn your thermostat way down in your house and turn off a few lights. Winterize your house from top to bottom. Eliminate and treat areas where heat and energy is lost. Cut back on home and cell phone use. Check insurance policies shop around and raise your deductible to lower your monthly bill.
In isolation, these probably do not have a lot of impact individually, but when they are combining in a well-planned, cleverly executed family budget, with discipline and consistency, they will start to make a difference and you will start to see the benefits and impact on your bottom line.
11: A family budget is a learning tool and process to empower individuals and families to better self-manage their financial resources, spending, cost cutting and household finances. In general You will be able to set-up your own personal or family budget.
By tackling the skill and mastery of smart budgeting, you will have a greater understanding eventually of exactly where and by how much, you need to adjust expenses to either live within your means or know how much extra you need to maintain your current lifestyle.
12: Other family budgeting process steps will require you to be able to identify and categorize all your expenses and, coupled with an easy to set-up and follow filing system, create the backdrop and framework for all future budgeting and fiscal planning at home or elsewhere.
13: Family budgeting is not something that is taught by parents or schools; however it is such a simplistic concept, process and task that it is almost unthinkable that we are not placing greater focus on it these days.
In the end, it is all about what you DO, to make ends meet, which implies action. To be in charge of your finances; family budgeting gives you a sense of real understanding and control over your money, not the other way around. Money is a ‘tool’ and life necessity but it does not prescribe how you should live or spend it.
14: Family budgets allow you to gain knowledge you would otherwise not have had at your fingertips, concerning your own and family finances.
For example: Knowing where and what expenses you can affect or effectively change, to cut costs appropriately, timely and immediately in certain cases is very helpful.
15: To enable your family budgeting process set up an easy and orderly log, record-keeping and filing system; and make spending notes often to track your money and habits. Trust me, we do not know where all our money goes. We are just certain of one thing and that it slips through out fingers, hands and pockets, cards and plastic, fast!
16: Understanding, explaining and sharing the benefits of good budgeting with others is pivotal, to get them on-board and participating actively in the family budgeting process. Ask for their ideas and input. Two heads are better than one in most cases. They might think of savings opportunity, consolidations and or things to do without, that you did not even think about or considered for a second!
17: Here are some more family budgeting summary steps to remember:
This guide and its content, will appeal to almost anybody:
Some of the most important process elements and content pieces of family budgeting to read more about, study, learn and practice, hone and refine are:
Another great way to learn about family budgeting is to ask around and to learn from others. With the internet at our disposal, there are numerous reliable sources of practical, tried, tested and true tips, strategies and techniques to follow. We selected but a few to provide a sample. Never underestimate the power of a shared experience!
Sometimes exploring a financial activity like family budgeting conceptually is not enough. Getting a practical perspective, with some hands-on tips can be more meaningful that a close description or analysis.
There are lots of definitions, opinions and numerous books have been written on the subject of budgeting for families, by families and others. In our information-age, knowledge is power these days and lots of parents and professionals share and voice their opinions openly on the internet, sharing and growing the body of knowledge. We selected a few examples to encourage others to explore these at their leisure as well.
Here are ELEVEN more practical suggestions and tips from online users posted on the internet on family budgeting:
1. Keep a record book as well as your bankbook
It takes time and requires a lot of self-discipline. Start each month with the balance and enter every payment, etc in advance, in the form of a calendar. It works well for most people due to the fact that they always have their actual working balance handy. Remember the comment about having your financial information at your fingertips? Here is a sure-fire way to get you on that path quickly.
2. Calendar Calculations
Putting regular bills on a calendar based on due dates and when salaries are received proves helpful to some. This helps specifically to get everything paid on time and keep in perspective where the money actually goes, since all miscellaneous expenses are also recorded.
3. Getting bills paid
Working out all the major and large bills (i.e., rent, car payment, insurance, etc.), dividing it up so every week, that amount is removed from the family ‘paycheck’. Therefore, at the end of the month, there is need or risk to lose an entire paycheck to rent or car registration.
4. 1-2-3-4 Plan
Divide all bills weekly. A set amount goes to a savings account each week. When there is a 5th Friday in a month, you have a "free paycheck" to save.
5. Open a household account
In a second checking account, deposit a sum that covers your monthly expenses. Have all of your bills automatically withdrawn. This account acts as a holding cell for household obligations - the primary account is for day-to-day operations. Works for me!
6. A timely budget
Get a notebook. List expenses and their due dates. Divide payments into small amounts & use labeled envelopes for payments and money storage. Reduce duplicate credit usage to 1 or 2 credit cards. Use the net for bill paying and to check your accounts.
7. Yearly savings
Making a list of all annual or once-a-year type bills (car registration, shots for pets, school pictures, etc.) and divide them by 12. Save this amount each month and, when one of these items come up, you have the money to pay it. No more surprises.
8. Save credit card receipts
Keep an envelope in the car for the credit cards you use. When you buy anything using a card, put the receipt in the envelope as soon as you enter the car. Keep changing the envelope every month. This will save you time and hassle when looking for receipts.
9. Only twice a month
Separate all bills to be paid on either the 1st or 15th of the month. This enables you to pay all bills at once and on time. An added bonus is that you will also immediately know how much money you have left over for entertainment, vacation and other discretionary items.
10. Split into Savings and Checking
Figure out a budget based on a savings account/checking account split. Savings builds up for things like real estate taxes, vacations, and insurance. Checking is monthly (e.g. phone, groceries, etc.). Split your monthly income into the savings and checking accounts according to the budget. Savings amounts are strictly budgeted. The checking account is controlled by watching the balance until the next payday.
11. Respect your partners need for financial security
Everyone likes to buy their toys, but the overall financial security of the household needs to be considered first. I am not against toys; just save up the money first to buy them versus putting non-essential day-to-day expenses on credit.
An example of a toy in my relationship was the spouse's need to have a big expensive truck in the driveway. I was not against the truck, I was against the debt to purchase the truck when there was no money in the savings or money built up for college tuition. Be considerate of the overall family financial situation and provide financial security for your family.
Moreover, on ‘living within a family budget’, online users listed FOURTEEN more great practical suggestions on family budgeting:
1. Stay busy after work
One "easy" way to avoid overspending and thus stay within your budget is to have something else to do after work. Get a second job that is fun, go to school, volunteer or get into great physical shape. The more you do, the less you will spend!
2. Watch those miscellaneous categories
Make sure you have enough well-defined categories to capture your true spending. Putting too much into a miscellaneous category makes it harder to track what you have spent and harder to control, especially the splurges!
3. Need
If you did not know you need it, you probably do not. Do not buy things just because they are on sale. If you had no use or want for it before you saw it on sale, then you will have no use for it later.
4. Save money for special occasions on a budget
Add up how much you will spend on Christmas, birthdays, etc. Treat that total like it was a debt and make payments to a savings account for special occasions. Be sure to select a specific day of the month that your payment is due and stick with an amount.
5. Don't Forget to Budget for Special Occasions
When forecasting your expenses, remember to include gift-giving occasions. Mother's Day, Valentine's Day, birthdays, Christmas, and anniversaries are good examples. If you plan to spend money on these occasions, remember to include this in your budget.
6. Don't use a debt to get out of another debt
Do not take out a consolidation loan to pay off your other debts. The point is to get out of it, not to squeeze them together and end up paying interest on the loan while paying off your debts. Try consulting a "free" debt counselor service first.
7. Remember To Budget Time As Well
We have all heard "time is money." Well-spent time can be an investment. Take a few minutes to plan ways to save on bills - 15 or 20 min. researching lower rates on electricity or long distance can pay off. You will know when time spent is not worth it.
8. The envelope system Total yearly/monthly bills, divide each into 12 months. Divide monthly amount into bi-weekly payments. Use envelope for each bill; put in cash every 2 weeks. Use only the cash in envelope till it is gone. Do not touch your account/debt card! Envelopes ONLY!
9. Good teeth cheaper
You can go to a dental school to have your teeth cleaned, filled, orthodontic work done, etc. The cost is approximately half what you would usually pay. Note: Make sure you have some extra time as this takes a little longer.
10. Avoid expensive friends
Avoid friends who want to go for drinks all the time or suggest an evening at home. The money you spend on drinks and snacks, can buy something better, or go into your savings account. Also avoid friends who want to have supper at your house because you are a "good cook" what that really means is that they are saving money while you are grocery shopping.
11. Keep Track of Your Expenses on a Daily Basis
I call the bank's automated line and do my banking every single night before I go to bed. I can see what checks and/or debits from my debit card are posted and what my running balance is. I compare with what I have in my checkbook or with receipts. This only takes about 10 minutes. Often people get into trouble when they try to keep a running total of what they have left in their head and get into trouble.
12. How To Live Within Your Budget
Organize, budget, and beat stress.
13. Know what you spend
Establishing a budget, and periodically entering all of your purchases into money managing software, should take the guesswork out of your finances. At the beginning, minor changes will most likely need to be made to your budget. Once you have a finalized budget, one person should be responsible for maintaining the budget and tracking finances. I sit down with my wife on a monthly basis and go over our financial results. If we are close to exceeding a budget line item during the month, I will tell my wife and we adjust our spending accordingly.
14. Cut down on interest
With bills happening throughout the month, people can find themselves poor one part of the month, and rich during the other. My bank offers free online bill pay, so I take all of my bills, and divide it by 4. I then pay weekly, so I always have the same spending cash each pay check. It also cuts down on the interest that accrues.
Sometimes, just listening to the opinions of others opens up our minds to other possibilities we have not thought of, read about or seen in any published material, industry-related text-books or budget specialist tip sheets and ‘how to’ layouts. All the technical information, procedural and budgeting principles are extremely important if you want to ensure lasting and sustainable change. It is also undeniably true, that in this day and age, collaborating and connecting with others is how we learn.
Utilizing online sources, electronic publications and shared experiences, solving common problems together is definitely the wave of the future. Some providers online offer ‘live’ customer consultations.
These are mainly for financial issues and mostly your first hour is free. If you are in a real crunch, crises and need a budget fast, but do not have the time to even read through the Coles-notes version, then maybe the internet has the answer for you. Always remember that you are the best-informed and decision maker in this process.
Taking control of your finances should challenge, invigorate and excite you. You are taking charge of your life, getting your ducks in a row so to speak and traveling down the road of fiscal responsibility and re-connection.
It is mostly a money crunch or crisis situation that make us lean towards budgeting more. Handling a money crisis well and realizing that family budgeting is but one pieces of that puzzle, might be helpful. The expectations, problems faced, context and depth of the crisis, is as important as the steps, procedures, techniques, tools and budget worksheets you end up using.
It is no surprise then, to even find the ever-popular ‘budgeting’ concept among these listed must do’s to re-collect, re-orient and return to fiscal freedom and avert further money-related crises!
This question immediately suggests that it should be part of the whole family budgeting process. It is much part of the learning around setting it up, considering its usefulness, function and purpose.
Creating or setting up the budget is one thing. Sticking to it, effectively implementing, sustaining and if actual fact, in essence ‘using’ it is the ultimate goal and achievement. That is worth celebrating. Families have different ways again to use or refer to their family budgets.
For some it will be no more than a general guideline. For others it would constitute an absolute rule not to be bent or broken. Others still will use the family budget as a strategic planning tool to protect the interests of his/her family and plan for a full and happy life, setting a small amount aside for the future, invested smartly and securely, with confidence and pride.
The very day the family budget actually assists you in reducing your spending and making informed smart financial decisions that is the day you do not sit back and relax, but throw all your energy back in making it even better. This is an on-going, continuous improvement exercise, experiment and undertaking of your own making, design and creation!
The family budget can:
It is very common to get discouraged when on the family budgeting path. The minute you feel you have taken strides forward, something will happen, a setback, unexpected upset or expense, breakdown, maintenance or replacement or car, appliance, major purchase or repair and many other setbacks will occur.
In a sense it makes families more robust, responsive and adaptable. Tracking your finances makes you aware of patterns and business cycles, cost and many other factors that affect hearth and home financial life and health. Rent increases, more expensive cigarettes or tax increases, higher gas or energy prices or increased mileage to and from work are but a few examples of these events and issues that might come up.
When faced with these challenges, problems or complexities, having your fingers on the pulse of your available resources, discretionary monies, savings, line of credit, rates, banking fees and more, will all help you make the right informed decision that is best for your family, at that time and act accordingly with diligence and confidence. You are in control of your financial situation and not the other way around. It enlightens and empowers you to do more with less!
Unpredictable pricing and fluctuating expense are not easy to reduce in any budget. Having this variation handy, spread over a period of time, can help you plan better and anticipate sudden spikes or higher expenditure during certain months of the year.
For example, the telephone bill is higher when the teenagers are home for the summer. Emergency, contingency and improvements are not priorities for most of us when we receive our paycheck. To ensure a steady stream of income into these categories make “saving for a rainy day” come to life and have some real impact and meaning in our financial planning.
Cutting non-essentials
first is a good strategy. Alcohol, long distance phone calls, gifts,
gardening and landscaping services, decorating costs, pet care
needs, recreation and lottery tickets can all be good money-saving
categories. The more line items you can include, in your cost
reduction, the smaller the dollar-amount impact in each.
It should come as not surprise that by just cutting a little in each of these categories, families can easily save upwards of $240 per year without too much noticeable difference in their lifestyle or any major disruptions or sacrifices. If is less than1 % of your total spending, it should not really cause pain, grief or reason for worry.
Family budgets can also provide hints on how to save on non-essentials: Buying more or less of a product or service, comparison shopping for the lowers possible price, bulk and discount, sale, buying a lower-priced or no-name brand. Eliminating some gift giving (Christmas, birthdays, friends and family) is a way to save money.
Elimination of waste is another clever way to save money that is often overlooked, BUT not in the family budget. Thrown out food because too much was purchased or it spoils because at time of purchase it was not as fresh as it could have been. Spur-of-the-moment clothing purchases, too trendy, uncomfortable and not the right size perhaps?
Making an active effort to participate in the family budgeting process will carry its own rewards as well. Self-discipline and curbing your own spending will soon become second nature almost.
Anything from a small rent increase of a couple of dollars to an all-out job-loss can impact home life and finances, and not in a positive sense. The family budget offers you the opportunity to prepare somewhat for this, whether pro-active or responsive action follow. Flexibility and adaptability are bonuses with family budgeting.
It will spell out the reality, damage, impact, what needs to be done at the barest of minimums to get by and offer stop-gap solutions, practical and accessible, right away. It is not to say that it will have you not worrying about it! All of us will be concerned if this is our situation, but it will leave you more prepared to deals with the challenges head on and right away as opposed to wasting time wondering what to do and how bad it is.
In the case of job loss mentioned above there are also immediate realities to consider. Financial implications are huge for family life and the pressure is on. Family budgets and informed budgeted will tell you that this tool and time spent will be worth every penny if this were ever to happen to them.
Because of the heightened awareness and familiarity with the context and content of the financial, spending and cost cutting plans and strategies, goals and savings, the family budget process and product now offer avenues to solutions rather than barriers of debt and no point of return.
Tackling normal spending categories first, reduced transportation costs, packing a lunch as opposed to having it in the cafeteria every day. Suspend all discretionary funding, move money in your accounts around to ensure liquid assets to cover basic expenses. Luxury items and recreation, sports and other leisure activities will be another category to find some budget dollars.
Maintenance and repair costs might be suspended or delayed, cost-cutting is never pleasant but the budgeting process makes it easier to know where the cushions and ‘fat’ is that can be trimmed or eaten away at, without risking heart and limb!
Other positive job-changes like promotions and relocations could also have a lot of impact. Taxes, relocation fees, buy-and-sell of homes, settling allowances, insurance, storage etc. they all add up. The family budget will help you assess your situation more clearly, leading to better decision-making and informed empowered choice.
Any discussion on ‘How to set up a family budget’, will be incomplete without a section dealing with debt and debt consolidation
Normally we use credit cards for a variety of good reasons, like convenience, business expenses, online commerce, instant accountability, unexpected bargains or expenses, medical and or other emergencies.
There are however, also very definite situations where plunging yourself deeper into debt is not a good idea at all:
Debt management and family budgeting actually fit like hand-in-glove together. They compliment and strengthen each other if used appropriately and with caution, diligence and commitment to change.
It is advisable to get a handle very early on in your budgeting process on what exactly the debt situation is. For most people this is the most painful part of the process. Facing their monetary past and the aftermath of overspending, lack of budgeting and large debt!
Extreme care should be taken early on as well to protect your financial interest. Review your family budget spending categories and avoid debt by every means you can and not use it for living expenses.
Repaying your debt should be the main priority. Consulting with a financial planning and debt consolidation professional and specialist will help you answer the question whether you need to consolidate, transfer, stop using credit cards all together, file for bankruptcy or what your other options are. Exhaust all the possibilities before pursuing this route.
A personal debt review can be painful, but is very necessary to assess the status quo or where you are now and how good or bad it is. What is the depth of your “obligation” category in your budget, where this will inevitably fall.
Debt is a wide concept, covering lots of things, including mortgage, car, credit cards and other retail credit card accounts and personal loans of any kind. IOU’s from family or friends also have to be included, if you are honest about making a difference, repaying in a timely fashion and truly want to know how bad it really is!
Your summary sheet can carry the following headings: account, total amount due, monthly payment, total interest paid last year, and interest rate. Financial advisors call this a debt review register. It is painful to see this data, because it will clearly show the impact of bad financial decision-making. Interest paid gives you absolutely NO BENEFIT WHATSOEVER!
Strategies for debt and cash flow management in a family budget include:
Take heart. Family budgets are not here to depress you even further. The fact that you are taking pro-active measures to participate in your life, ,sends the right signals, not only to creditors and credit counselors, but also to the family members that care so deeply about you too!
Another popular topic for family budgets, is children and fun activities. How to make the most of these togetherness opportunities, while living and functioning within limited means and on a budget, causes many money wise parents concern:
Family budgets is not all doom and gloom. There are always ways to do little things together, make memories and invest time and attention in one another that costs absolutely nothing but time, a smile, a hug or two and a caring heart to share them all with!
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