Most of us know that a budget is a very basic, but important, way to handle finances. A well-designed family budget not only puts you in control of your money, but it also brings peace of mind, improves family relationships, and helps relieve financial stress.
Many Canadians bypass a budget because they think it will be too difficult to create or follow. Or, they may want to hide from the fact they are spending more money than they have. However, taking a head-in-the-sand approach to dealing with family finances can spell disaster.
If you don’t have a budget, there’s no better time than now to make one. Here are five easy steps to creating a successful family budget:
#1: Assess your finances
The first step in building a livable budget is to find out how much is money is coming in and going out. Start by writing down all of your debts, the balances that you owe, the payment amount, and when your payment is due. Then, determine how much money you bring in each month on average. This will give you a better idea of what you have to work with.
#2: Track your spending
Next, you’ll need to track where your money is going each month. Make sure that all members of the family who spend money know where it is going. Review and balance your checking account statement monthly. Make sure you keep a running log of your daily spending too. Daily trips to the store or vending machine are often overlooked, but they add up fast.
Keep a log of your spending habits for three months. Average the amounts you spend in each category to determine what you are actually spending.
#3: Set goals
After assessing your finances and tracking your spending, you are ready to set realistic financial goals. Saving for unexpected expenses and paying down debt are excellent goals that will establish a foundation of strong financial health. Goals are really the basis of your budget. They’re what keep you on track.
Set short term goals to meet immediate needs such as medical expenses, home improvements, and gift giving. Medium term goals, those you plan to reach within two to five years, might include vacations, beginning a savings account, or paying down debt. Long term goals, such as saving for a college education or retirement, take planning and self-discipline.
#4: Make your budget
Next, you can make your budget using the averages of the amounts you spend on various categories, such as food, utilities, and gas. Then allocate that amount to each category.
#5: Review and revise
Be ready to make changes in your budget. Budgets don’t always work the first time. You may find that you’ve allocated too much money towards food and not enough towards savings. Look over your budget and adjust it as necessary, and be patient with yourself as you fine-tune your budget.
A successful family budget is the key to long term financial health. Using these simple steps, work together as a family to build a budget that helps you reach your goals.