How to set up a family budget without losing your mind.
Want to get your finances in order but don’t have hours to do a deep dive on the process? I got you. The cool thing about budgets is that they are truly living documents. Once it’s set up, you can always go in and make adjustments as you go. With that in mind, here are the basics to get your budget up and running in about an hour.
1) List your income sources.
- Regular income: This category covers paychecks or any regular sources of income you receive, such as Social Security Income, Child Support, trust fund payments (shouldn’t we all be so lucky), interest income, rental income, etc. Basically, anything that you know you can count on that amount within a couple of hundred dollars every month.
- Note: For both regular and irregular income, make sure to note how often you expect to receive each income source. The most common timelines are weekly, monthly, bi-weekly, and twice a month.
- Irregular income: Side gigs, variable self-employment income, regular bonuses, and commission (unless yours is very consistent) all fall into this category. This can be included as a source of income, but it needs to come secondary to regular income, if possible, and you’ll want to either set some aside to have a consistent amount each month or base your expected income on the lowest month.
- Seasonal/Annual income: While similar to irregular, and is treated much the same way, it helps to differentiate this type of income from irregular income you receive throughout the year. The biggest difference is that this income should not be allocated toward regular expenses. It’s best directed toward cushioning your emergency fund or meeting other savings goals. Sources like annual bonuses, birthday/holiday gifts, tax refunds–basically, things you may or may not be able to count on–fit here.
2) List your expenses.
- Weekly/monthly expenses: List out everything you regularly spend money on each month. There are 2 main types of expenses here:
- Fixed: These are your weekly/monthly bills that are about the same amount each month. Line items like rent/mortgage, utilities, childcare, loan payments and payment plans, subscriptions, and anything else for which you are regularly billed a set amount fall under this heading.
- Note: Be very thorough with subscriptions–most people have more than they realize and some they don’t even remember signing up for.
- Variable: Expenses you incur each month that are not regular bills and may be lower or higher, depending on the month, are considered variable. Two of the most common variable expenses are food (groceries and eating out) and gas or other regular transportation costs (aside from car payments), like bus passes. You may also have a line item for things like entertainment, pet food and supplies, gifts, and miscellaneous expenses.
- Fixed: These are your weekly/monthly bills that are about the same amount each month. Line items like rent/mortgage, utilities, childcare, loan payments and payment plans, subscriptions, and anything else for which you are regularly billed a set amount fall under this heading.
- Quarterly/annual expenses: This category covers expected expenses that only come once/quarter or a year. We can also include large expenses that come every few years, such as professional licenses (teachers, I see you) and driver’s licenses. Since you will be creating sinking funds for all of these expenses, it’s ok to group the fixed and variable in one fund, or you can separate them, depending on what feels more comfortable for you. Some examples of the fixed quarterly/annual items are vehicle registration, property taxes (if they’re not in Escrow), self-employment quarterly tax payments, annual subscriptions (hello, Amazon), and certain utilities, like trash and sewer. Variable items might include a gifts fund for birthdays, anniversaries, Christmas, and other holidays; vacation; clothing; medical expenses, like copays and prescriptions; and pet vaccinations and vet visits.
3) Assign each expense to a paycheck/pay period.
- Plot out each paycheck on a calendar, then plot your fixed expenses on the same calendar, according to their due date. (Colored highlighters or markers can be helpful to visually note the end of each pay period.)
- On a separate ledger or spreadsheet, list the bills due during that pay period. Subtract the expenses from your net income (take-home pay) until each bill during that pay period is accounted for. Next, list your variable expenses for that pay period (groceries, gas, etc.).
- Any funds remaining after those expenses are allocated to an income source can be directed to the following:
- Additional debt payments: pay it down faster to lower your monthly bills and save on interest.
- Savings: set aside an emergency fund of $2,000-3,000, then aim to work up to 3-6 months of expenses (note, that’s expenses, not income!)
- Sinking Funds: designate either a single savings account (preferably a high-yield account, like this one from CIT Bank, so your money can be working for you) or separate accounts for each fund, and set up automatic transfers to be sure you set those funds aside each month. Then it’ll be there when those quarterly and annual expenses come around.
- Note: If you’re coming up short on the money you need to cover all the bills in a pay period, look at either reducing any non-essential bills or start setting aside from pay periods with more cushion to cover bills during tighter pay periods (i.e., work up to living on last month’s money).
4) Record/monitor your actual expenses.
It’s not enough to just set it and forget it. Budgets are really spending plans, and they work best when we direct them. That said, there are some wonderful apps out there, free and paid, that make this a pretty seamless process that takes just a few minutes a day to stay on top of it. Goodbudget, YNAB, and EveryDollar are some user-friendly options to check out. If you prefer to track expenses yourself, you can just add a column in your spreadsheet or paper ledger for actual expenses alongside the expected amount. If you’re looking for simple, though, the apps handle the bulk of the recording work for you, so you can just drag and drop your transactions into the appropriate budget category.
5) Evaluate at the end of each month and adjust as needed.
Like we said at the beginning, a budget (spending plan) is a living document, and like any other plan, it will probably need slight tweaks every month. Sometimes you might decide you want to make a major change, too, but if you’re already working with it throughout each month, it will be much easier to see what to keep/toss/adjust to meet your needs and goals.
Clear as mud?
Is there anything you would add to the process? Let me know your thoughts and whether you felt this was helpful to get you started on the road to budgeting.
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