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How to create and maintain a family budget


A family budget can serve as a map to keep you on the road to financial stability.

Your money shouldn’t be a mystery, but it is for many people. In fact, according to a 2020 survey conducted by budgeting app Mint, 65% of Americans don’t know what they spent in the past month.

“People are always more optimistic about their finances than they should be,” said Howard Dvorkin, a chartered accountant and president of

That optimism, combined with a lack of knowledge about where the money is going, can lead people down the path of debt or even bankruptcy. However, a family budget can serve as a map to keep you on the road to financial stability.

How to make a family budget

Before you sit down to create a family budget, understand and embrace the importance of this financial tool.

“The most important step is the mindset,” says Tatiana Tsoir, a chartered accountant and consultant at consulting firm The Bold Method. “You have to understand why you want or need it.”

For some people, a budget can be a way out of debt. Others may have a specific savings goal, such as a vacation, retirement, or a new car. Still others just want the peace of mind that comes with knowing they can comfortably pay their bills each month.

There are plenty of budgeting tools available to make the process easier. For example, offers budgeting worksheets and there are a number of family budget apps.

Regardless of how you decide to lay out your spending plan, the following steps are crucial to creating a family budget:

1. Bring both partners together.

2. Make goals.

3. Track income and expenses.

4. Evaluate your current situation.

5. Reduce costs.

6. Build savings.

7. Get out of debt.

8. Lower your taxes.

9. Check in regularly.

[READ: 10 Simple and Free Budgeting Tools.]

Bring both partners together

A budget will never work if the adults in the family are not on the same wavelength. Before you start crunching the numbers, have a candid discussion with all the decision makers in the house to achieve shared and individual financial goals.

If having nice shoes is important to one partner, the other partner cannot criticize or demean that choice. Similarly, if someone prefers to save rather than spend, their preference should be respected. However, both partners must understand and accept that compromise may be necessary to create a budget that works for the entire household.

Older children can also benefit from being involved in these conversations so they understand why parents make certain purchasing decisions.

“They are starting to learn the details of budgeting,” said Snigdha Kumar, head of product operations for budgeting and finance app Oportun.

Make goals

Whether your budget succeeds or fails can largely depend on whether it aligns with your personal and family priorities. Again, this is why it is critical to sit down with all decision makers in the household.

Decide together what is important to your family. That could be a parent who stays at home to raise children, an early retirement or a long journey. Assuming the goal is realistic, create your budget so that the money will lead towards achieving that dream.

Track income and expenses

Before you can write a budget, you need to understand your current financial situation. Start tracking or viewing 60 days worth of transactions through your bank and credit card accounts. This is crucial in determining what money is going to waste in your household black hole.

“You need to understand the health of your finances,” says Kumar.

This doesn’t have to be a long or tedious process either. Many banks and credit cards collect account information and produce income and expense reports. You can also turn to inexpensive and free budgeting tools, such as apps from Mint and Oportun.

Evaluate your current situation

As you track expenses, place them in categories that make sense, such as housing, entertainment, dining out, and debt service.

Once you know how much you spend in each category, determine which expenses are fixed and which change throughout the year. It’s also helpful to identify which categories are discretionary, meaning they cover expenses that are fun but not essential for your family.

Also, be sure to accurately record the amount of income available to spend each month. It’s a mistake to budget based on your gross pay.

“Calculate your after-tax net income,” Dvorkin advises. “It’s not what you make; it is what you keep.”

Trim costs

If spending in one category is too much or there’s no money left to save or pay off debt, it’s time to cut spending.

Eating out, for example, is often a drain on many budgets. Menu planning, grocery shopping, and buying items in bulk can all reduce the cost of groceries and make it more economical to eat at home. Cable, subscriptions and impulse purchases via the internet are also low-hanging fruit when it comes to reducing household spending.

A family budget should also account for irregular expenses for children. “Let’s be real with kids,” says Tsoir, “something always comes up.” Failing to account for these expenses could result in your entire budget being lost and, depending on the total cost, you may need or want to limit your children’s extracurricular activities.

[READ: How the 70/20/10 Budget Rule Works]

Build savings

Savings should be a top priority for any money left after monthly expenses are paid. While it may be tempting to focus on paying off debt first, having an emergency fund is just as important. It’s a general rule of thumb to keep enough savings to cover three to six months’ worth of expenses.

“Life tends to send unexpected things all the time,” says Kumar. “A really simple way to[prepare]for that is to have a rainy day fund.”

After an emergency fund, retirement is the next saving priority. Workplace 401(k) accounts and IRAs offer tax incentives, making them a good place to deposit money for retirement. Many employers will match employees’ 401(k) contributions up to a certain percentage, and employees must contribute at least enough to their retirement plan to receive the full match.

Get out of debt

Having enough savings is essential for creating a stable financial base, but that is easier said than done for some families. “If you’re in debt, that’s not an option,” says Dvorkin. “If you’re living paycheck to paycheck, that’s not an option.”

Getting out of debt is a critical step to building a family budget that is sustainable in the long run. Debt can divert a significant amount of money from interest charges, and it limits the money available to save or prioritize.

One of the simplest strategies to get out of debt is to allocate extra money in your budget towards the payment of your smallest debt. Once that debt is paid off, forward all of your extra money to the next smallest debt, and so on, until all debt is gone from your family budget.

Lower your taxes

Don’t forget the importance of taxes when budgeting. By reducing the amount you pay to the government, you can free up money for other priorities. In addition, putting money aside in tax-advanced accounts can ensure that you have money available for future expenses such as health care, college, and retirement.

If you have a qualified, high-deductible health insurance plan for your family, you can deduct up to $7,750 in a health savings account by 2023. That money is also tax-free when used for medical expenses. For college savings, consider a 529 plan that offers no immediate federal tax deductions, but may have tax breaks. These accounts grow tax-free and can be used tax-free for qualified educational expenses.

When it comes to retirement, a traditional 401(k) or IRA offers an immediate tax deduction on contributions. However, withdrawals at retirement are subject to tax. If you don’t want to pay taxes later in life, use Roth accounts. Contributions to Roth 401(k) accounts and IRAs are not deductible, but the money grows tax-free and can be withdrawn tax-free after age 59 1/2.

[Read: How to Save Money When Online Grocery Shopping.]

Check in regularly

Once completed, a budget should serve as a roadmap for how a family plans to spend its money in the future. To be effective, it must be consulted regularly to ensure that the household’s actual expenses are in line with what is written. If family circumstances or priorities change, the budget can be adjusted.

“Budgeting is not a sprint,” says Kumar. “It’s a marathon.”

Meeting monthly to review last month’s expenses and look ahead to next month’s expenses can help partners keep family finances in check. Combining a budget review with a date night can be a great way to make this process feel less like a chore. Regardless of how you structure check-ins, remember that all partners are on the same team and must work together to achieve financial goals.

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How to create and maintain a family budget originally appeared on usnews. com

Update 4/18/23: This story was previously published and has been updated with new information.

Joanna Swanson

Joanna Swanson is Europe correspondent at the Thomson Reuters Foundation based in Brussels covering politics, culture, business, climate change, society, economies and inclusive tech. With specific focus in breaking news, she has covered some of the world's most significant stories.