Budgeting.
Quick poll: did you quiver at the word or rejoice? Perhaps a little of both?
Odds are, you likely recognize the importance of budgeting but shudder at the state of your family finances. That is okay. That’s why you’re here.
Our family of four operates with one full-time salary and one part-time, hourly wage. Our two children, small house, two dogs, a mortgage, and two student loans are a lot to fund. I know so many of you have different circumstances – SAHMs, single parents, larger families, smaller families, hobby farms, entrepreneurs and business owners, bigger budgets and smaller budgets. The common denominator between all of us is the need to understand our financial situation no matter the income, no matter the situation.
Now, raise your hand if your family has one spender and one saver.
Again, likely for many of you, this is true in our family as well. My husband’s wallet burns a hole in his pocket while mine is practically locked away for all of eternity. Admittedly, that’s an exaggeration. I, too, have my bad habits. Starbucks, Target splurges, kid clothes. No matter the culprit, our spending culminated to a point in which I entered all of our monthly spending into a spreadsheet for just the month of August last year. I broke down crying when I saw the total. How had we gotten here?
We can not live like this. This was not sustainable.
Together, we agreed it was time to change. Thus, a budget was formed.
Many years ago, we embarked on the Dave Ramsey budget. For those unfamiliar, this is a zero-based budget that tallies accounts for every penny in, and every penny out (or saved). In addition, the foundation of the spending is cash-only. Every single purchase should be made in cash including conscious saving for major purchases – even a house.
With the fundamentals of this budgeting system and through months of trial and error, our family has developed a simplified – and personally, more realistic – system of money management that works for our family. **Full disclaimer: We are not accountants or finance professionals. Through trial and error, our family has identified a budgeting method that works for us that I hope to share with you. Perhaps you, too, can turn a spender into a saver.
Budgeting Guide for your Family
- Add up ALL of your spending for one month
Coming to terms with your spending is the scary part. I created a simple spreadsheet with three columns: Dollar spent, where it was spent, and categorized that place (gas station, restaurant, retail, groceries, etc.). Each expense is a new line item. If spreadsheets aren’t your skillset, don’t worry. A notepad and calculator will do just fine. Total your spending for that month, and try not to freak out. Or, freak out and fuel that motivation for change. Shock is okay, trust the process. - Add up ALL of your regular monthly must-expenses, aka: The Bills
The mortgage, childcare, electric bill, Netlfix, loan payments. All of it. For me (this is where I learned I was a spreadsheet nerd), I made 31 rows in a spreadsheet labeled 1-31 to write down when each of these recurring bills were due. Add together your monthly must-expenses to see exactly what you’re paying in bills. - Don’t forget those annual expenses. Car insurance due six months, Amazon Prime subscription, Sam’s Club membership, taxes, etc. Again, this was another table for me in my same expense spreadsheet. January to December in rows, dollar amount and bill categorized accordingly. If it’s easier, average these out into monthly “bills.” Or, take note and be sure to include them in that monthly budget moving forward.
- Deduct your monthly bills from your monthly income
This will give you a good idea of the amount “leftover” for ALL of the other expenses: groceries, clothing, haircuts, gas, kid sports or activities, pet food, savings, etc. Use a spreadsheet or a simple notepad and calculator, whatever works best for your family.
Example Family: $3,000 monthly income – $2,000 bills = $1,000 remaining for other expenses - Identify – TOGETHER – the areas of improvement you can make
As soon as you notice patterns of spending, you can start to form ideas on how you wish to control that spending. I could not believe the money wasted at gas stations for us. Gas stations! Those ancillary purchases like soda, snacks, those darn juice bottles with the cute characters on top for the kids? It was awful. For us, this was a big surprise and a definite bad habit we needed to curb. Please note that I stressed “together” in this section. Every single one of you has a bad habit or two. It’s critical for your family and budget to come together on compromises and understanding of these behaviors. If one of you feels targeted during this process, I can guarantee the budget will fail. Keep this part conversational and compassionate. - Compromise
When the motivation for change kicks in and you’re ready for a united front by the entire family, you’re ready to work out a budget.
Set realistic goals for each of you. For me, it was cutting down Starbucks visits, and him trimming gas station spending. This may take weeks of conversation. How easy it is for us to become defensive or upset? If you are in disagreement with where the spending should be prioritized, take it back a few steps. Wait another month and add those expenses. See if the pattern persists. - Adopt the “we can work with that” mentality. Trim, if necessary
If you become stuck in a negative rut of “we only have $___ leftover after bills,” look where you can trim. Is it canceling Netflix? Reducing devices on your cell phone plan? Shopping around for a new garbage removal company? You DO have options. Trimming can help adapt your budget to find money where it was hiding before.
Once you feel comfortable, start telling yourself that you can do this. - Determine HOW you will best spend money
This feels odd, I know. We use cash. For us, swiping a debit card is much too easy to spend absentmindedly. Cash is easy to account for – cash in, cash out. Some like debit card spending because you can deduct it immediately from your bank account. Some like credit card spending because you can pay in full at the end of the month to easily see total expenses. Determine what works best for your family. - Categorize spending
Remember those categories identified in the first step of totaling your spending? Identify all the categories in which you spend monthly. Add additional if you think of any. Each family will be different.
Example Family: Groceries | Gas | Retail | Mom | Dad (you should each have a personal frivolous, judgment-free spending budget allocated each month) | Pets | Vehicle Maintenance | Restaurant | Babysitter - Prioritize
Now we’re getting down to the tricky part. It’s time to prioritize those spending categories. For us, we knew we had to cut back on gas station spending. We also noticed our restaurant spending was frightening. One restaurant meal for four totaled almost 5 days worth of groceries. Yikes! Again, no matter what you’re spending money on, identify areas of improvement and goals. Refer back to those conversations on compromise, and together determine how your family needs to better prioritize money. For us, it was removing restaurant spending in lieu of better quality (and more) groceries. - Set the budget!
Here we go! Use the dollar amount remaining after deducting expenses from income (Step 6) to budget within the categories identified (Step 9). Stress those compromises and priorities (Step 10).
If we return to the Example Family, it could look something like this:
Example Family: $3,000 monthly income – $2,000 bills = $1,000 remains for spending
Spending Pools:
Groceries $500
Gas $100
Mom $50
Dad $50
Dogs $50
Restaurant $75
Vehicle Maintenance $50
Retail $50
Babysitter $25
Savings $50
TOTAL: $1000 You’ll notice the grocery bill is quite a bit. We allow one big restaurant visit OR perhaps two pizza deliveries that month. Mom has $50 to purchase whatever she wants; Dad has $50 to purchase whatever he wants. Take note, the personal spending is judgment-free. This allows us to each feel like we have our spending freedom, but are spending within those guidelines applicable to our family. - Revisit your budget next month. Repeat.
Which budgets did we work within? Which were over or under-spent? Were we realistic? Have those conversations with your family to make a plan for the next pay period. - Adjust accordingly, constantly.
Take this one month, one pay period, at a time. Each month will be a little different from the next. Some months it may work, other months you fail. Expenses arise that weren’t budgeted for, income variables such as overtime or unpaid days off arise, and some surpluses may surprise you. Perhaps one month you need a babysitter, and the next month vehicle maintenance is more expensive. Continually look at those spending habits, spending priorities, and compromises to make a budget work for you.
Whether you use this same system or not, budgeting is an important learning process for your whole family, and may take months – years? – to completely figure out. Our family is still learning and adjusting. Occasionally I realize one annual bill I’ve forgotten, or another bill changes its rates. Some months are awfully expensive and others we have a little extra to splurge. Believe me, I am no budgeting expert. We are still balancing loans with the stress of trying to save. But this is working for our family; perhaps it may work with yours.
The most important component of budgeting is embarking on this together as a family.
Give yourself grace and accept that now is as good of a time as ever. It’s not too late. If our family can do it – believe me – you can, too.
