I remember hearing all the time about how important a budget was. The problem is that I’m useless with numbers. I don’t mind using spreadsheets, but when it comes to doing calculations within them and working with numbers, I’m useless.
There’s a possibility that you are too, and it may be putting you off starting your first family budget. Don’t worry; it turns out that it’s not that hard to do! After taking over my family’s finances, I managed it, and we’re now mostly out of debt and have even started saving for the future.
Here are the steps to creating your first family budget.
Know Your Income and Outgoings
Go over your last statements. I recommend the last three at least, but it’s best to get the last 12 months if you can. This is going to be difficult if you throw them away, but now many banks offer them online or will send you another print out of them.
Use the statements to know exactly how much comes in each month and the amount the whole family is spending. You need to add up everything. It’s no good adding up the regular outgoings. You need to include the cash withdrawals, those luxury one-off purchases and the visits to restaurants or takeout facilities. These give you a very clear indication of whether you are actually overspending or not.
For now, just a simple look at whether you are overspending or not will do. You’ll go into the details in the next step.
Separate Your Spending
Now it is time to look into your spending and separate it into sections. You need to make a clear note of the spending that is necessary, and amounts that you can’t really change. These are things like your rent/mortgage, your utility bills, and any loan or insurance payments. It will also include the food that you buy—your main shopping list, not your special trips to restaurants and takeout facilities.
Then look at the amount that is going into savings, if you are making payments. This includes your retirement fund, any holiday funds, and any emergency funds that you may have.
The next step is to look at where you’re taking cash out of your account. This is likely spent on items that you have now completely forgotten about. You will need to track this over the next month, but I’ll come to that later on. Right now, put your cash withdrawals to one side.
Finally, look at any luxury purchases you have made. This will include birthday gifts, clothes that you’ve bought and even your daily coffee trips if you pay by card.
By separating your spending, you see just how much is going on the necessities and the money that you could essentially be wasting right now. It will also help you set up your spreadsheet, which I’m moving onto now.
Create Your Family Budget Spreadsheet
One reason I love Microsoft Excel is that it has some very simple family budget templates to follow. However, you can create your own template or you can download one from the internet. Your spreadsheet doesn’t have to be anything flashy, as long as it works.
Make sure you have two columns: one for the predicted amounts and one for actual amounts spent and earned in the month. At the start of each month, you need to fill out the predicted amounts. At the end of each month, you will need to fill out the actual amounts.
The main part of the budget separates all your spending. You will need to have separate rows for the necessary purchases, your cash withdrawals, and the luxury purchases. This just makes it easier to keep track of your different types of spending to make sure you stay within the designated budgets.
Set the predicted amounts that you will spend based on the amount that you have spent in the past. Do the necessary purchases first, since you will most likely struggle to change them—and you need to make sure your income covers them. Then move onto the luxury purchases and cash withdrawals, making sure you never spend more than the predicted income.
Tracking Expenditures During the Month
Whenever a payment goes out, it is essential that you track it during the month. Set up a spreadsheet on a different sheet within the same file like this:
Track the name of the business that’s received the payment, the amount spent and then a running total of the amount that you’ve spent. Some people find it better to start with the amount that they had available and work their way down to zero, while others like to go the other way. It all depends on what you’re comfortable with.
Do this for each type of purchase, and make a clear note of when you withdraw cash and how you spend it. Keep the receipts you get to update your family budget when you get home, so you don’t have to hope you remember.
Determine Where to Make the Cuts
It’s really important to work out where you can cut back on your spending. It’s best to get to the end of the month with money left over that you can put in your savings accounts.
Start with the luxury payments. Cut back on as much as possible. For example, do you really need the manicures at $30 a session every month? Is it really necessary to buy your coffee on the way to work each day? The answer is no! You can cut these out if you need to cut back on your spending. How you cut back and what you give up is completely up to you. When we had to do it, we cut back on buying lunch and made it at home first, and I personally cut back on getting my hair dyed professionally.
It really isn’t impossible to set up a family budget. It can seem tricky at first, but coming from someone who is completely useless with numbers, it is something you can do. If you’re struggling to get started, I really suggest one of the templates that suits your needs.
Remember, the first month of your budget is going to be the hardest. You may even find that you overspend. This is fine, as long as you learn from your mistakes. It’s likely the time that you’ll find just where you’re spending your cash after withdrawing it, and it’s a time to really think about whether you need to make that purchase. I found the first month hard and I did overspend, but I got on track in the second month and am now at a point where we have more disposable income to put into savings.