Taking care of your family means addressing a number of financial challenges. Keeping track of the constantly changing expenses that your family has is probably the biggest one. Here is how you can succeed financially.
The expenses that you must take into account to manage your money correctly are many and include housing, purchasing food, and utilities and other monthly bills, and make it a difficult matter. The answer to the problem is a family budget.
What is a family budget?
A family budget is a statement that shows how family income is spent on various items of expenditure: necessaries, comforts, luxuries, and other cultural wants. It generally has more categories than a personal budget (and often multiple incomes), but its purpose is the same: to help your family successfully manage its money.
Creating a budget will help your entire family succeed financially, no matter how many members your family has. Everybody who depends on your income (your parents if they depend on you or children from a previous marriage or away at college) must be included.
A family budget is a key strategy to ensure that your household is financially healthy (now and in the future) because:
• It establishes how much your family can spend each month to help prevent debt.
• It helps you to save for future major expenses;
• It provides an overall view of how much debt your family has and how that debt impacts your financial future.
• It helps you to be prepared for an emergency.
What elements should you include when setting up your family budget?
Family budgets typically have seven components: housing, food, child care, transportation, health care, other necessities (e.g., clothing and entertainment), and taxes.
These components can be organized into four categories:
• Fixed expenses: These expenses include items that cost the same every month (mortgage/rent, car payment) and that can’t be reduced because they are necessities. The amounts remain stable, so you know exactly how much of your and your partner’s paychecks you need to put toward these expenses.
• Variable expenses: Variable expenses (e.g., groceries, utilities) fluctuate month to month. Some of these expenses will be needs (your electricity bill), others are wants (money spent on outings).
• Debt: Debt can be anything from credit card balances to student loans. An effective budget will help you figure out how to pay off any shared debt (and avoid any debt that your kids might be saddled with later on).
• Goals: Your family’s financial goals should be can be short-term and long-term goals and are what your budgeting decisions are decided upon. They could be things like “Save $200 for emergencies over a year” or “Pay off the car loan in three years.”
All of these categories are important to keep in mind as you prepare to build your budget. Every family budget will be different, according to its unique characteristics. Getting your budget right is the first step towards financial success.
How to create a family Budget
Your budget may change quite a bit when it goes from being a personal budget to a household budget that must include the needs of a whole family. Here is a guide to create a family budget and achieve financial success.
Your budget will need to change as you plan for additional monthly costs like baby food or diapers when you decide to start a family, or as your children get older and start with expenses like classes and sports, that you will need to budget for. A family budget is the best way to tackle these constant changes.
What should you have a family budget?
A family budget shows the distribution of the family income and helps you make ends meet, and though it may seem complicated, it simply helps you keep up with how much money you’re bringing in each month and how much you’re spending.
Every family is structured a bit differently and has its own major variable expenses that may be shared custody costs, care of an aging parent or other adult dependents, or a chronic medical issue. It’s important to créate a budget that adjusts to your family’s needs.
You can build your family budget following these following simple steps:
Step 1: Establish your family income. This means taking into account all money that comes in and includes paychecks, side job profits or any other money you receive every month.
Step 2: Tally up your household expenses. First, look at your fixed household expenses (that generally don’t change) and include ítems like rent, car payment, insurance, credit card payments. Then, see how much you spent last month on variable expenses like food or utility bills. To finish, calculate your “discretionary spending” that is what you spend on wants and not needs.
Step 3: Calculate your net income. To do this, subtract the total monthly expenses you calculated in the last step from your take-home pay total. The result is your net income. You need the result to be a positive number. If not, your family is living on more money than your ear.
Step 4: Make a list of family financial goals. These goals may be short-term goals like paying off all of our credit card debt in two years or Long-term goals like paying for your child’s college tuition in 14 years.
Step 5: Figure out where you can cut back.
Step 6: Determine a debt payoff plan.
Step 7: Plug this information into a manual or digital budgeting tool.
Do this every month with your partner. Once you’ve set up the framework, all you have to do is track your expenses. Compare the amount that you budgeted with how much your family spent.
Financial adjustments you need to make before having your first child
Starting a family is exciting and life-changing, so you need to be financially prepared. Here are some moves to make before your first child is born.
Starting a family is a milestone for many. Your life changes and so do your finances. And even in this exciting new stage of life, there are some things you need to consider before your first child is born.
1- Change your budget
So, this might sound obvious but it is not. If you already have a budget, you need to update it so it accommodates your growing family. Adjust your goals and see how this modifies your expenses. Include any potential cost that might come along with the baby, such as childcare.
This might also give you the possibility to cut down costs that no longer seem necessary, like dining out every other day. Develop a realistic budget so you can plan accordingly.
2- Build an emergency fund
According to the USDA, the cost of raising a child is almost $250,000. So it’s probably a good idea to save up for an emergency fund before having your first child, as it will be more difficult to do so once the baby is born.
Increase the amount of money you are currently saving. A good starting point is to have at least three to six months’ worth of expenses saved before your child is born.
3- Consider Maternity Leave
You or your partner are likely to take some time off work once the baby is born.
This might affect your income, so you need to have a plan. Whether it is making extra hours to compensate for the time in which your income will decrease or to find ways to make some extra bucks, remember to consider this as a part of your budget.
4- Start buying supplies early
It is a good idea to stock up on baby supplies and gear a few months before the little one is born. Even more, if you plan a baby shower a bit earlier than usual, you might have a better idea of what things you need to buy and what things you don’t.
5- Minimize debt
Being in debt can be hard when you are trying to start a family, so try to minimize it as much as you can, if not all. Having less debt will also allow you to save more money.
How to make your budget work to afford a second child
If you're expecting a second child, your spending and savings habits will necessarily have to be modified. Here are some budgeting tips to help you adjust to the arrival of the new baby.
Having kids is anything but cheap. If you’ve had your first child, you already know this. From diapers to daycare to future extracurricular activities it all adds up.
While you may feel like you need no advice, overlooking tips to prepare financially for a second child could be bad news for your bank account. Fortunately, affording a second child is more than possible with the right planning.
If your new baby is on the way, consider these budgeting tips for a second child:
1. Think carefully about upsizing
When asking yourself if you can afford to have a second child, consider whether your current home and car can fit your growing family.
Running the numbers through a mortgage affordability calculator can give you an idea of how much a bigger home might cost if you need one.
Changing your current car out for something larger may also be on your mind, but upgrading could mean adding an expensive car payment into your budget.
Buying a used car can help stretch your budget when you’re trying to afford a second child.
2. Be frugal
It’s tempting to go out and buy all-new items for a second baby, but preparing financially for a second child should include reusing as much as you can from your first child. That might include clothes, furniture, blankets, and toys.
Accepting hand-me-downs and buying used items will help your budget greatly.
3. Analyze your childcare options
You may already realize how expensive daycare can be for just one child, but that doesn’t mean affording a second child will be impossible.
If one parent’s income is going solely toward childcare, for example, it could make more sense for that parent to stay at home.
Parents should think about the trade-off between both parents working if it means paying more for daycare.
4. Prioritize financial goals in your new budget
Most tips to prepare yourself financially for a second child focus on spending, but don’t neglect to create line items for saving in your budget.
An emergency fund, paying off debt and saving for retirement should also be on your radar. You might even be thinking about starting to save for your children’s college.
Having a second baby may be expensive, but if you budget correctly it won't catch you off-guard. Remember, the earlier you begin planning, the easier affording a second child can be.