How to make a family income and expense plan

Every family needs a budget; even royal families have one! While the Dutch royal family, specifically King Willem-Alexander and Queen Máxima of the Netherlands, could afford all the opulence associated with some other royal families, they opted out. They have eliminated certain perks, such as the royal yacht and multiple palaces. Instead, they have chosen to reside in a more modest villa, which is a fraction of the size of some grand royal residences.

Whether you’re a royal family or an ordinary one, you, too, can benefit from gaining control over your finances. This guide will teach you how to create a family budget and walk you through all the steps, from assessments to reinforcements. 

1. Assessing current financial situation

Understanding where you stand is the crucial first step. Here are a few guiding principles for a closer look at your financial landscape:

Gather necessary financial information

When gathering necessary financial information, it’s important to be thorough. Start by collecting your bank statements for the past few months, as well as utility bills (electricity, water, and internet bills). Don’t forget to gather any loan statements, such as mortgages, car loans, or student loans, and investment statements, including brokerage or retirement account statements.

Calculate total income

This includes your primary salary or wages, income from side hustles or freelance work, investment income, rental income, or any other forms of earnings. It’s important to consider both regular and irregular sources of income.

Determine fixed and variable expenses

Fixed expenses are recurring costs that generally stay the same each month, such as rent or mortgage payments, loan installments, insurance premiums, and subscription services. In contrast, variable expenses vary from month to month based on your choices and lifestyle. These include groceries, dining out, entertainment, transportation, clothing, and other discretionary spending. 

Analyze spending patterns and identify areas for improvement

Are there any categories where you consistently overspend? Are there areas where you can cut back without significantly impacting your lifestyle? Look for opportunities to save or optimize. 

2. Setting financial goals

Identify financial goals with different timelines:

• Short-term goals cover a period of less than a year and include building an emergency fund, paying off personal debts, or saving for a vacation. 
• Medium-term goals span one to five years and feature things like saving for a down payment on a home or funding a child’s education. 
• Long-term goals extend beyond five years and revolve around retirement planning, purchasing a property, or achieving financial independence.

Determine which goals are most crucial to your family’s financial well-being and prioritize them accordingly. For example, addressing high-interest debt or saving for emergencies should take precedence over other goals.

3. Creating an income and expense plan

Let’s dive in and start creating your personalized roadmap to financial well-being:

Categorizing income sources

Ideally, your primary income should be reliable and predictable, allowing you to plan your budget and expenses with greater confidence. As for secondary sources, consider allocating such income towards savings, debt repayment, or long-term financial goals rather than incorporating it into your regular budget.

Categorizing expenses 

Variable expenses are often more flexible because they can be adjusted based on personal needs and priorities. For example, you can choose to reduce your grocery bill by opting for cheaper alternatives or shopping during sales. Discretionary expenses offer even more room for adjustment since they are entirely optional.

Deciding on a type of budget

Three common types of budgets to consider are:

• 50/30/20: 50% of your income to cover essential needs; 30% – for discretionary wants; the remaining 20% – for savings and debt repayment
• Envelope: physical envelopes or digital categories to allocate money to specific spending categories
• Zero-based budgeting: assigning every dollar of your income a specific purpose

In truth, there is no one-size-fits-all budgeting approach, and each family has unique circumstances and preferences. If health and wellness are essential to you, you might allocate more funds to gym memberships or organic groceries. 

Determining a savings target

What is a realistic and achievable savings rate for you? Avoid setting a savings rate that is so high it becomes burdensome or prevents you from meeting your essential needs or enjoying some discretionary expenses. In other words, aim for a savings rate that challenges you but remains within your means.

Also, the nature and timeline of the goals you set earlier will influence the savings rate you need to achieve.

4. Tracking and monitoring

There are numerous budgeting tools and mobile apps available that can help you track your income, expenses, and savings goals. These tools often provide visual representations of your financial data, send alerts for approaching budget limits, and offer insights into your spending patterns. Take a look at these tools weekly, biweekly, or monthly, depending on your preference.

Important note: budgets are not set in stone. Life circumstances and financial goals can change over time, so be open to making adjustments as needed. For example, if your income increases, consider allocating more funds to savings or paying off debt faster. 

5. Communicating and involving the family

This is family budgeting, after all! Encourage everyone to share their financial goals, whether it’s that dream vacation, a new car, or saving for college. This is the time to engage in lively discussions and let the excitement of planning a brighter future fill the air. Everyone’s input is valuable, and by listening to one another, you’ll foster a sense of unity and shared decision-making. 

Encourage every family member to take on specific responsibilities that align with their skills and interests. Each person becomes an active participant in managing the family’s finances, contributing their unique abilities to the process. 

Celebrating milestones and achievements

Celebrate your financial milestones by treating your family to something special. Indulge in a delicious dessert, prepare a favorite meal together, or plan a fun outing to mark the occasion. Take this opportunity to reflect on the progress you’ve made and the exciting possibilities that lie ahead. It’s a well-deserved treat that serves as a reminder of your financial prowess and motivates you to keep pushing forward. 

Strategies for saving money and dealing with unexpected expenses

Here are a few strategies to help you conquer financial challenges:

• Cost-cutting measures – Whether it’s finding deals, cutting back on unnecessary purchases, or embracing the art of couponing, these small changes matter.
• Ways to increase income – Consider starting a side hustle, monetizing your hobbies, and investing.
• Preventive maintenance – Regularly maintain and repair your belongings to prevent costly emergencies down the line. This applies to home, vehicle, and even personal health. 
• Emergency handling plan – Take stock of the resources available to you, including savings, income streams, insurance coverage, and any government assistance programs. Speaking of programs, there may be community resources, charitable organizations, and support networks.
• Insurance coverage – Get adequate coverage with health insurance, homeowner’s or renter’s insurance, and auto insurance.

Recap

A successful family income and expense plan begins with goal assessment and meticulous planning. However, while the initial stages lay the foundation, the real excitement lies in the actions and decisions you make along the way. It’s important to stay vigilant and maintain a keen eye on your progress. 

Every day presents an opportunity for your family to take meaningful steps toward your financial goals. These actions may seem small individually, but they add up to significant progress over time. Whether it’s making smart choices when it comes to spending, finding creative ways to save money, or dealing with new challenges, each decision is a stepping stone for a more secure future.

Sources: 

How to Plan a Family Budget, Verywell Family

Family budget & money management tips, Raising Children Network