Most families have financial goals, such as buying a new car or sending the kids to college. To save enough money to achieve them, a family budget is crucial. It lets you, your partner, and your kids know exactly how much money is coming in each month and the amount you’re spending on essentials. With a family budget, you can make a plan for any discretionary income you earn or decide what expenses to cut back on.
For your budget to work, it’s vital that every member of your family remains on the same page and engages with the process. Work with your spouse or partner first to lay out the basics of your family budget, then get your kids on board by showing them the importance of budgeting.
Financial harmony is one key to a successful marriage or partnership. You and your partner should be in agreement on what you’re working toward financially and how you’re going to spend or save your income.
To get started budgeting as a couple, sit down together and have an honest conversation about money. The best time for the conversation is when you’re both relaxed and calm. Discuss your financial goals and what you want your money to do for you. If you haven’t shown each other your individual finances, this can be the perfect time to do so.
Your individual finances can include:
Being honest with each other about your individual finances ensures you’ll have a good understanding of where your family stands financially before you put together your budget. During the conversation, listen to each other and reserve judgment. Remember that if you’re married or in a long-term relationship, one person’s money challenges will become a shared obstacle.
Next, it’s time to crunch the numbers. How much are you both bringing in each month? What are your expenses? If you haven’t been tracking your spending so far, now is a good time to start. Over the next month, record every purchase the two of you make.
At the end of the period, add up your expenses. You can also sort them into categories, such as dining out, clothing, transportation, and groceries. Compare the total amount of your expenses to your combined income. Are you spending more than you earn or earning more than you spend? Are the numbers equal?
Now is the time to talk about goals and how you’ll reach them. What do you and your partner want to do, and when do you want to achieve your goal? Looking at your budget again, are you able to add in your new goal without making any changes to your spending? Can you save for a house or accelerate your debt payment without a significant adjustment? If you do have to make changes, where can you cut back? You may also need to find a way to earn more money to make your budget work.
How you talk to your children about budgeting depends in large part on their age. Children under the age of five are most likely still too young to grasp abstract concepts, but school-aged children are ready to learn the basics of making a plan for their money and setting goals.
To make money and budgeting less abstract and more concrete, give your kids money of their own. You can give them an allowance, pay them for doing certain types of chores, or encourage them to go out and find a part-time job. Once your kids have some money of their own, talk to them about using it. What do they want to buy? Next, talk about the cost of items compared to the money they have available. If the things they want cost more than the money they have available, your kids will need to save up or set a budgeting goal.
You can use jars or envelopes to demonstrate budgeting basics to your children. If they earn $10 per month, talk to them about how they want to use that money. Maybe they can save 20% of it ($2) for a rainy day. Maybe they’ll save 20% ($2) for a fancy toy or video game. Maybe they’ll set aside $3 for candy and donate $3 to a cause they think is important. Label the jars or envelopes with each category (save, spend, and share) and put the appropriate amounts in each one. Once the jar or envelope is empty, your child can’t spend from that category until they get their next allowance.
School-aged children and teenagers aren’t too young to get a peek at the family finances. Teaching your kids good money habits starts with showing them the family budget. Working together to reach a family financial goal, such as saving for a dream vacation, can be particularly rewarding.
To keep everyone inspired and involved, sit down as a family and talk about goals. You can set short-, mid-, and long-term goals. A short-term goal might be reducing your spending as a family. Ask each person if they can think of something they can live without. Your kids might give up a new toy they’d like to get, and you and your partner might decide to cancel one or more streaming service subscriptions.
Mid- and long-term goals should benefit everyone in your family. An example of a mid-term goal might be saving up to go on an overseas trip as a family in a year or two.
A long-term goal might be establishing a college savings fund for each child. If you can tie your short-term goals to your long-term goals, it can be particularly beneficial. For example, by cutting back on spending on streaming services and toys, you’ll be able to put that money into your savings for the vacation or for your kids’ education.
Keep yourself on track by setting up a regular family budgeting meeting. Gather together every month to talk about bills, changes in your family expenses, and your progress toward your various goals.
For more family budgeting and money management tips, visit our WalletWorks page.