Having a family budget can help you handling the household expenses in a much better way. It helps you to manage your money in a wiser manner. It also helps you in saving more money and controlling your extra spending. Further, it will facilitate in paying off debt early and staying out of debt.
A family budget gives you an accurate picture of the inflows and outflows of your finances, absence of which can make you rely on more credit cards, loans etc. to pay off your bills.
One must have a family budget to stay out of financial stress which can have an adverse effect on other aspects of life as well.
Once you have a budget, you must keep on updating it on a regular basis, to ensure its proper utility in handling your finances.
From where to start?
- List down all your Incomes
Add up all reliable and certain sources of income like salaries, rent from house property, fixed interest income, investment income, average income from business (incase you are into proprietorship business) etc. If you receive income occasionally, be it from your hobbies or some windfall gains like lottery income etc., don’t put that receivable as income in your budget. Your budget should be a document you can depend on.
- Add up all your expenses
Put all your fixed monthly expenses like rents, loan installments, taxes, insurance amounts, children expenses (like school fees, activity expenses, tuition fees etc.) in your budget under fixed expenses head.
Some of your other monthly expenses are fluctuating in nature, like utilities bills (electricity, water), groceries etc. For these variable expenses, put the maximum amount you estimate, basis your past bill amounts/ spending.
Use your bank and credit card statements to help you figure out what are your usual spending categories each month and make sure you’re not leaving out spending in any categories.
You will also find some non-recurring expenses. Figure out those expenses and see if similar expense would happen this year as well. If yes, divide that expense into monthly expense and account for the same in your expense list. For annual expenses, divide the total amount by 12 and for semi-annual by 6, for quarterly expenses, divide it by 4 and put it in your budget.
Other than these expenses, there are certain one-time expenses also. Like buying furniture/ renovation expenses/ electrical appliances etc. for the house. For such expenses, discuss with your family if there will be any such expense in coming year. If so, estimate the amount and average it out to put it in monthly expense list.
- Calculate Your Net Income
Your net income is what are left over i.e. all incomes minus all expenses. This is the income you will have in hand after all your expenses are paid off.
Calculate your net income by subtracting your expenses from your monthly income.
You would always want this net income to be positive, which will mean that your earnings are more than your expenses, which also depicts a healthy monetary cycle of your family. This amount can then be utilized for paying off any debt/ borrowing.
You must note this net income even if turns out to be negative.
d. Future Planning
You need to list down all your monetary requirements basis your short-term as well as long-term goals. The amount you will be needing after your retirement for your living and healthcare, the education & marriage expenses of your children etc. Estimate this amount and the number of years after which you will be needing this amount. Start saving for the future immediately and try to figure out how you can increase your sources of income, to ease the current expense patterns.
You must try to save as much as possible for your future requirements, as there may be some unforeseen circumstances in life as well. So saving is of utmost importance.
e. Adjust Your Expenses
Incase your net income is negative; it means that as per your budget, your spending is more than your incomes.
You should try to fix this problem right at this time, else it might create a problem later during the month. This can be done by adjusting your expenses.
As such, one can always cut short on the expenses as it is in the hands of the spender. But one cannot increase their incomes there and then.
Variable expenses are typically the first places you can adjust spending, like eating out, entertainment, and other luxurious expenses.
Evaluate your spending areas by using “desire vs requirement” technique. You can reduce or eliminate the expenses in the “desire” category, to adjust the necessary expenses.
Your family budget is ready. It will include incomes and expense of all the family members.
Now keep on reviewing the budget on a regular basis and make the necessary changes, if any.
How to track your spending?
At the end of each month, you must examine the budgeted figures against the actual spending. Analyze the variances and the reasons for the same.
If you go over budget, i.e. you have spent more than what you had budgeted, then you need to analyze the same and rework on the next budget to adjust this deficit. If you have overspent in one area, you can always cut down in the other area, to keep a balance in future.
Further, you must be extra cautious while spending the money. One way is to keep a weekly check on the actual spending vs the budgeted. This will help you curb your expense in that category.
Incase you are under budget, i.e. you have spent less than the budgeted amount, don’t make a mistake of spending it right away out of happiness. Be wise and utilize that extra saving either in paying off your debt or putting that amount into your future saving bucket.
Make sure you account for maximum expenses in your budget, while for incomes head, you only account for the fixed incomes. This is necessary to fully rely on the family budget for any unforeseen liabilities in future.
