Blog, Family, Helpful MOM Tips

Creating a family budget

October 6, 2015
Creating A Family Budget | View From The Fridge

If you know me, or if you’ve been reading this blog for a while, you may know that I’m married to a Financial Advisor.  Yep, Matt owns his own ‘Wealth Management’ company and has for the past six years.  There are some interesting things about being married to a financial guy (and I’m sure he could say the same thing about being married to a blogger).  Budgeting is a tough subject for some families (ours included at times).  Today, however, I thought I’d share some of my thoughts about the process, some of the things we’ve tried, and what we’ve found works best for us with the thought that you may be able to pull some helpful hints from it.

Creating A Family Budget  |  View From The Fridge

You know how sometimes people who do something professionally are actually terrible at that same thing at home?  Cleaning ladies or janitors that have messy homes, accountants that have disorganized personal finances, chefs that prefer to order take out, etc.  I’ve even experienced this myself.  I used to own an Etsy shop where I made all kinds of baby items … bibs, blankets, changing pad covers, crib sheets, crib mobiles, DIY nursery art, etc.  I spent all my evenings sewing items that people had purchased, that I never actually made anything for OUR nursery or little boys.  If you went into their rooms, you’d find a store-bought, tattered changing pad cover and generic crib sheets from Target.

At times, however, this has also happened with our family’s finances and budget.  Matt spends all day helping others budget, meet their financial goals, plan for retirement, invest wisely that when he gets home having another ‘budget talk’ was just not what he wanted to do.  But, we’ve been working on it over the years and have slowly grown to a point where we’re comfortable about what’s happening with our money.    What I guess I’m trying to say is that we’re not perfect in this area (and maybe nobody is), but we have tried several tactics and we have been working on simplifying and refining our budgeting process over the years, and that’s what I’m going to share today.

I actually ‘interviewed’ Matt for this post.  I wanted to know if our process was similar to other families.  I wanted to know where he sees people struggle the most, where the common budget ‘pitfalls’ are, what couples learn from completing a budget, why people even create budgets (and if there are families that don’t have any sort of budget), and some of the emotions he’s seen budgets bring out.  It was an interesting conversation (that we had over a couple Paleo Margaritas one evening).  More details on these questions to come in further posts … stay tuned!  But back to the basics … creating a budget:

CREATING A BUDGET

START WITH WHY

Before you begin the process, you need to know why you’re creating this budget.  Is it because your spending is greater than your income and you need to get that back in check?  Is it because you want to save for a big purchase (car, home, etc), a big vacation, or college for your kids?  Is it because you have a goal for when you want to retire?  Or maybe because you’re contemplating a change that will drastically affect your income?  That last reason was probably the kicker for us, the reason why we got serious about creating a budget.  We really wanted to be able to have me stay home with our kids.  Up until Charlie was about 6 months old (about 3 years ago), I had been working full time.  We had two income streams, but wanted to make it work to go down to only one.  Was this feasible?  What would need to happen to make this do-able?  That is what our budget helped us do at the time … determine HOW we could make it work.  When you know why you’re creating a budget it will help you stay motivated to keep working toward the goal.  And maybe you have several ‘whys’, which is fine, too, as long as they’re clearly articulated and discussed before you begin.

DETERMINE YOUR CURRENT STATE

Next, you’ll have to have some idea of where your spending is at currently, as well as your income.  You can do this by looking back through bank and credit card statements to get more exact numbers or you can simply estimate.  Make a list of your spending ‘categories’ and then assign a dollar amount to each (either the exact number (or average) from your statements OR what you are estimating you currently spend).  You’ll want to break your categories into two groups – fixed expenses and variable expenses.

CURRENT EXPENSES & SPENDING:

We actually have quite a few categories of spending, but you could definitely simplify this.  Here are our categories:

FIXED:

  • Mortgage
  • Insurance (home, life, medical, etc)
  • Car payments
  • Car insurance
  • Utilities (gas, electricity, garbage, water)
  • Cell Phone
  • Cable
  • Student Loan Payments
  • Gym membership
  • Preschool
  • Pet insurance
  • Credit Card Payments (paying down debt)

VARIABLE:

  • Food
  • Gas
  • Entertainment (dining out, movies, concerts, alcohol, and babysitters)
  • Clothing
  • Home improvements (or furnishings, decor, etc)
  • Target (or similar … basically on things like diapers, shampoo, toothpaste, laundry detergent, etc)
  • Hair (or any other personal services … manicures, massages, etc)
  • Gifts (including Christmas)
  • Vacation Fund
  • Misc (hosting parties, family pictures, Christmas cards, etc)
  • Charity / Tithe

Go through each category and assign your current state as best you can (again, by either looking at bank statements or by estimating).

CURRENT STATE SAVINGS GOALS

Before you factor in your income and compare that to your spending, first jot down some of your monthly savings goals.  Are you trying to build up your ’emergency fund’?  If so, how much do you want to put away each month towards this (i.e. $500/month towards this will get you to your goal within a year, $250 a month and you’ll be there in 2, etc)?  Are you putting money into a college fund?  If so … how much do you want to put towards that each month (i.e. Your kids will start college in 10 years (120 months), and you wish to have $50K saved … you need to put away ~$420 per month)?  If you are trying to build up your retirement savings or trying to save for a down payment on a home … how much do you need to put away each month?

CURRENT STATE INCOME

And finally, what is your income currently?  Include salary, bonuses, and any other source of income such as dividends, alimony, etc.  If you’re creating this budget to see if you can go down to ONE income, use that income as your ‘current state’ (the one income that will remain).

COMPARE AND CREATE A PLAN TO BALANCE

Creating A Family Budget | View From The Fridge

Here’s the {sometimes} scary party … add up those numbers and compare!

Add up your current state expenses and savings goals and compare with your current state income.

Do they match?  Are your monthly expenses + savings goals less than your monthly income?  If so … HOORAY!!!  You’re in the minority, my friend, and it appears nothing needs to change going forward (or you’ve underestimated some expenses … shoot!).  Your next steps are to track your spending closely to ensure your numbers are accurate going forward.

Most likely, however, your expenses plus savings goals will be more than your income.  This is where the tough conversations and decisions come in.  If you’re single, this process is simply a matter of prioritizing what you spend money on, and cutting back on the areas that are least important until your expenses + savings targets = your income (more on that below).

If you’re a couple, however, this is where you need to have the sometimes emotional conversations.  I’m sure you’ve heard before that money is the number one reason that couples get divorced, and it’s easy to see why.  Money is often tied to some deep rooted beliefs.  The two of you were obviously raised differently and have different views of money, lifestyle, and even some values.  Matt explains this in greater detail in his book that’s coming out soon, but money and how we save and spend it has a lot more to do with our upbringings than we realize.  For Matt and I, these conversations lead to some interesting findings.  Matt grew up with good, wholesome food and home cooked meals as a way of life.  Therefore, it is very important to him that we buy high quality food (and thus our grocery bill is MUCH higher than most).  I needed to understand that this was something he deeply valued to understand why our budget for food each month is so high.  For me, family vacations (even just short road trips) were something I deeply valued growing up.  My parents made it a priority for us to travel together, and these trips are some of my fondest memories of growing up and of my parents.  Matt needed to understand this to understand why I was willing to cut out other areas of spending to be able to increase our family travel budget.

As a couple, go through each area of spending and savings targets until they align with your income.  Make sure you talk through each area and listen to each other’s thoughts.  If you’ve never done this before, these conversations may just lead to some surprises and some things you never knew about each other (and that’s great!).  Most likely, you’ll be looking for some areas to cut back on.  Look for my post next week on just that … Common Areas To Cut Back Expenses.

TRACK, TRACK, TRACK

Once you have agreed to a budget that meets your needs and goals, you need to track this!  You’ve laid out the roadmap, now you just need to make sure you’re following it!  There are a couple ways to do this:

  1. The first is the old fashioned way:  collect your receipts (on all purchases) and record what and where you’ve spent money each day.
  2. The slightly-more-modern version on the old fashioned way is to simply log into your bank account(s) and see what transactions have transpired each day.  Either download this data into a spreadsheet (if available) or manually record the amounts spent each day into their respective categories.  If you and your spouse have multiple accounts, you’ll need to check each one and categorize accordingly.
  3. The next option, that we actually tried for a while, is the envelope method.  It’s both a tracking mechanism and a way to force you to stay on track.  Basically, at the beginning of every month, you take out cash and put it into envelopes based on your categories.  If you agreed to $300 monthly for entertainment, then put $300 in that envelope at the beginning of the month.  The $700 for budgeted for groceries goes into the ‘grocery’ envelope.  And so on ….   The bills or payments made electronically obviously will be handled separately (and hopefully those are more fixed payments).  There are some big PROs to this method of budgeting and tracking.  Like the fact that you can physically SEE the money that is left in each area and you’re well aware when you’re out (you don’t have to wait until compiling your records at the end of each month to show you how you did versus budget …. it’s right there in front of you).  Also, there is something to be said for ‘handing over the cash’ in exchange for your good or service.  It makes the transaction more real, and makes you think (even if just for a split second) about the value of what you’re receiving.  “Do I really want this $4 coffee today when I could make my own at home for less than a buck?”  “Does this manicure really give me $30 worth of pleasure?”  “Do I really need to buy this book, or do I have a friend I can borrow it from?”  And, of course, there are some CONS to this method (and probably why we don’t use it anymore).  The cons are #1 … remembering to grab the cash before leaving the house (because you’ll be forced to resort to plastic payment if you do).  #2.  What about the things that you just can’t pay cash for … bills (of all kinds … mortgage, utilities, car insurance, etc), internet shopping (hello, amazon prime!!), hockey registration, etc.  Is it more work to try to incorporate both the envelope items AND the ‘other’ expenses into a budget?  However, I do think this method is wonderful for some couples … especially if you spending is out of control (or if you have no idea where you’re spending your money and want to get a handle on it … immediately and in real time).  {Bonus:  check out my friend Lauren’s post with free printable envelope templates … HERE.
  4. And the last method for tracking your spending (and comparing that with your budget goals) is by using a software program or app to help with all the details and nitty gritty.  This is our chosen path, and I’m so glad we started using it!  There are several programs out there to use, but I can only speak to the one we use … Mint.com (and, no, they are in no way sponsoring this post!!  These are just my honest thoughts on what we’ve found to work for us).  Basically, you are able to link up your bank accounts to the program.  From there, mint.com will automatically categorize every expenditure you make.  The program ‘takes it’s best guess’ on some purchases (i.e. it will put a transaction from Pump & Go into the ‘gas’ category, and one from ‘Lund’s Grocery’ into the ‘grocery’ category), but at first a lot of transactions go into the ‘uncategorized’ category.  As you go along, however, you can ‘inform’ the software that purchases from ‘Olympic Hills Golf Course’ and ‘The Fine Line Music Cafe’, should go into the ‘Entertainment’ category.  After informing the software of this, every transaction from either of these two places from there on out will automatically go into the ‘entertainment’ category.  Within the program, you are able to create a budget with as many categories as you like.  You simply create a category, tell it how much you are budgeting for in that area each month, and it will track you real time progress throughout the month.   There is maintenance involved, but it is SO MUCH easier than manually tracking each and every expense on a spreadsheet.  Your goal will be to clean up the ‘uncategorized’ category frequently so that all expenses fall in one of your chosen budget categories.  You can just log in whenever and see what you’ve spent versus what you’ve budgeted on any day of the month. mint_example

Using one of these methods, track your spending closely for a couple months.  It will quickly tell you how well you’re doing compared with your budget, and where you need to adjust and rebalance.

Next week, I’ll share more about ‘easy’ places to cut back to help balance your budget!  Thanks for stopping by today, and I’d absolutely love to hear your thoughts on family budget and what has worked for your family (or what hasn’t).

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6 Comments

  • Reply Kacey October 6, 2015 at 11:55 am

    LOVE this Katie!! Thank you so much for sharing your wisdom!!

  • Reply Krista October 6, 2015 at 8:07 pm

    These are great tips. Even after being married 18 years my husband and I are still working on our budgeting, I can’t wait to share these ideas with him and tweak what we are currently doing!
    Krista recently posted…Wake Up WednesdayMy Profile

  • Reply Kristy as Giftie Etcetera October 13, 2015 at 8:16 pm

    Great, simple but realistic process for family budgeting. Thanks for sharing.

  • Reply Bev October 17, 2015 at 2:09 pm

    My husband and I use Mint.com to track our finances and it definitely helps, but we’re not as good as we should be at sticking to our budget. I’ve considered using the envelope method, but we have a credit card where we earn points for trave, which certainly has its pros and cons. I find it’s helpful to check int a couple times a month to see howe we’re doing and readjust as necessary. Thanks for sharing, great tips! Stopping by from SITS.
    Bev recently posted…{Recipe} Farmer’s market frittataMy Profile

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