How to manage your family budget wisely

A budget is always important, but once you have children, it’s a no-brainer! If you expand your family, without proper financial management, it can easily break the bank.

A single person who overspends in one area, like recreation, can easily balance it out again by cutting down on groceries, for example. But, having children can make it hard to do that. For example, you can’t skimp on nappies or baby formula, so finding ways to get a handle on your spending can be tricky! The answer is to plan carefully and stick to the plan!

Photo by Mikhail Nilov: https://www.pexels.com/photo/stressed-woman-looking-at-documents-6963054/

Why family budgets matter

One of the greatest gifts you can give your family is stability. A budget aims to provide financial strength. It forces you to define and prioritise your goals and motivates you to achieve them.

A budget is like a money map. Goals can be anything from buying a family home to building a college fund for your bubs.

The 50-30-20 rule

This budget ratio helps you work out what portion of your income should go where. In other words, what percentage should go to debt, recreation, living expenses, savings, and other expenses?

There are various budget ratios, like the 70:10:10:10 rule or the 40:30:20:10 rule. But, the “golden ratio” for budgeting is the 50-30-20 rule. This means spending 50% of your income on needs, 30% on wants, and 20% on savings and debt.

This offers simplicity and structure. What makes it a great choice are the following factors:

• You only have to track three categories.
• It’s less intimidating than more complicated methods.
• Provides a clear map of where your money should be going.
• Allows you to set spending boundaries while still enjoying treats.
• Clarifies how much you should be saving.
• Prioritises debt reduction.

The rule is not set in concrete nor meant as a guide. You’ll need to customise your budget to suit your needs. You could cut down the amount allocated to “wants” and invest in savings. This can be especially important when trying to build an uni fund, for example.

Planning your family budget

Education can be a significant expense in a family budget. Besides school fees, there are uniforms, stationery, computer devices, and textbooks to consider. Another factor is your child’s sports and extra-curricular activities.

Here is a list of other child-related expenses to budget for:

• After-school care or babysitters
• School lunch orders
• Birthday parties and gifts for friends
• Clothes, shoes and haircuts
• Toys and hobbies
• Extra food, grocery items and takeaway nights
• Entertainment like play centres
• Dental and medical costs

Five steps to creating a family budget

Working out a smart family budget can be stressful. Here is a five-step strategy to help you get started.

1. Calculate your total family income
   Start by writing down your wage, and include your partner’s wage (if you have one). Next, add all other income sources, such as government benefits, rental income, investment income, or side hustles. The final number is your total family income.

 

2. Calculate your total expenses
   Work out your regular bills, including mortgage or rental costs, utilities, loans, clothing, entertainment, and even your daily coffee. Also, look at your bank statements to highlight hidden monthly costs, like unused subscriptions and small direct debits you may have forgotten about.

 

3. Compare income and costs
   Now compare your incomings with your outgoings. This will display what’s left at the end of each month. If you spend more than you’re earning, the budgeting process will be life-changing.

 

4. Set financial goals
   Seeing your expenses in black and white can reveal unhealthy spending habits. Reduce your spending and decide which expenses you can downsize.

Organise your goals by order of priority, for example:

1. Paying off the mortgage
2. Paying off your credit cards
3. Saving for the kids’ education fund
4. Saving for a family holiday
5. Saving for a new car
6. Saving for home renovations
7. Building up a rainy-day fund

 
Get the whole family involved in your savings goals so everyone can work together.

5. Create your family budget
   Consider isolating small, regular amounts into a slush fund for unexpected needs like a medical or dental bill. It provides a safety buffer for non-emergency curve balls.

   Use a simple exercise book or spreadsheet to note your family budget. Alternatively, use a budgeting app. Depending on the figures, setting up separate bank accounts for each area of expense can be a handy way to keep track.

   Your budget is an excellent opportunity to teach your kids good money habits. Let them in on how you break things down and get them involved where you can.

   The earlier they learn all about budgeting, the better they’ll be at managing their finances in later years.

   Even the best-planned budget can go off track. If an unexpected expense does pop up, don’t panic! Credit24’s simple, fast application process may provide quick financial relief if needed.

Source
https://www.forbes.com/advisor/banking/guide-to-50-30-20-budget/