How to Create a Family Budget

Some of you may already be starting with a family budget. Those of you who are forming a family unit for the first time are probably in for a culture shock particularly when it comes to the family budget and savings.

Budgeting for your entire family may be a little different from creating a personal budget. There are many factors that you need to take into account depending on the size of your family and their various requirements. However regardless of the kind of budget you are creating - personal or family budget - one extremely important rule of thumb that you need to remember is that your living expenses should always be lower than your income.

Here is how to get into the never ending cycle of debt:

This is a scenario that is seen in many families. The income generally remains a constant but the outflow is variable and only seems to increase. Often outflow is more than income and the family is headed toward incurring a debt load. As the debt load increases, more of the income is diverted toward paying the debt. So money left for spending only decreases which again adds to the debt load. It is a vicious cycle which many families can't seem to find their way out of.

Remember that debt and borrowing to meet that debt always costs. Interest and non payment fees only add to your expenses. This is definately not the way you want your budget to go. Managing your income with a good budget system will help you avoid this trap. The Credit Card with free interest periods can be a great way to purchase if it is managed very closely. However most people and families on low incomes fail to manage their credit card well at all and eventually end up with an interest bill on their cards that they cannot possibly meet.

When asked to produce a record of expenses, most families burdened by debt will say that they have spent money on necessities such as food, clothes, etc. Yet, if asked to come up with their family budget, most people cannot give a detailed account of where the money is being spent.

Keep a record of expenses

So before you set out to create a family budget, gather a record of your expenses. The best way to do this is to keep all bills, receipts, and credit cards statements. This will include your utilities bills, physicians, bills, groceries, service station bills, etc. Once you have this in hand for a couple of months you can calculate an average of what you spend and develop your budget accordingly.

Set your goals

As a family, there are many goals that you may need to consider while creating your budget. Budgets that are centered on certain short-term and long-term goals are often most effective. For example, a long-term goal that you may set is to create a college fund for your kids, or a retirement fund for yourself, while a short-term goal may be to save for the family vacation that year. It is best to discuss the goals with everyone in your family to get their buy-in and commitment to achieving these goals.

Prepare your budget

Now that you know how much you are spending on different items and what your goals are you are ready to draw your budget plan.

It helps to put down a list of the various items under which you incur expenditure every month. Create this list and fill in your projected expenses under each item on your list based on your analysis of your record of past expenses. Ok this can be daunting if you don't have a record of past expenses or you don't have past expenses. Just use estimates that you and your family or friends agree would be the amount you need to set aside for an expense. Over time you will realise that some estimates may be low others high and adjust your budget to be more acurate.

Finally, keep in mind that the first time round you may in your enthusiasm create an unreasonably demanding budget or you may even forget to budget for some items. While mistakes are inevitable, creating a budget can be an incredible learning experience. It prompts you to take a close look at your income inflow and outflow each month so that you can think of ways to save money each month. It is an incredible experience when you realise that your actuals and your budget actually balance. This is the time when you can assess your goals and possibly look at ways of increasing your savings.

Remember that just like any diet that does not allow for occasional binges/breakouts cannot succeed, that No Budget will succeed long term when you do not allow for mad money.

Cash Flow in your Budget.

When I was young and starting into marriage and my first banking relationship, we went to a bank and asked about setting up a budget to ensure we covered our rent and loan repayments that we had committed to. We also wanted to ensure there would be enough there to cover the major bills like vehicle Registration and utilities.

We gave our figures to the bank and were asked to comeback sometime later. On our return we discovered the bank wanted us to put away a figure which left us very little to live on and obviously nothing for luxuries.

The result was that we never ever learned to budget and spent our lives living from pay to pay and not being able to take holidays or just staying home for them.

Now that I have(finally) figured out this budgeting concept I believe that the bank employee involved failed to explain properly that the amount that was required was needed to meet the first high peak in our cash outflow. In other words when the next major expense became due in a short period there would not be enough money available. He also failed to explain that once that major expense was cleared the amount required to meet the remainer of our expenses could have been reduced drastically.

Thinking back now life could have been so much easier and more fun if we had been taught how to budget properly.

Most budget plans simply work out the average payment required to meet expenses over a given time period, usually one year. This is all very well but it does not allow that some expenses may need to be met before there is enough money in your budget fund or envelopes. You might find that you don't have enough money to pay a large bill near the commencement period of your budget.

Basically as well as working out a budget and putting that sum aside each payday you will also need to work out when there may not be enough in the budget account to meet a projected expense. This can happen because in the budget, you will be paying this expense over the remaining paydays in the period of your budget.

You will find further information about how to overcome this problem with budgeting when you subscribe to http://yournesteggbuilder.com membership.

Don't be alarmed! The method is reasonably easy with a little instruction.

I wish you all the luck and good fortune you need as once you master combining your budget with your cash flow you should be able to cater for all your needs for the remainder of your life without great hassles.

Reg Whelan