Budgeting · June 16, 2020

Making a Budget to Fit Your Family's Needs

Budgeting for your family can feel like a complicated task. Incomes vary, and expenses differ depending on everything from family size to the cost of living in your area. You may also struggle to figure out how to handle changing priorities and unexpected costs.

Making a budget that works for your family's unique situation doesn't have to be overwhelming. Here are some essential steps to help you break down the process and make it seem more manageable.


Step 1: Calculate your household monthly income

If either you or your partner receive a salary from a traditional job, start by looking at your most recent pay stub. Depending on how frequently you get paid, you'll multiply that number by four for a weekly paycheck or by two for a biweekly or twice-a-month pay schedule.

But what if you or your partner have irregular income? In that case, the calculations are a little more complex. Gather the payment information for the previous 6 months, and use that to figure out the average income per month.

Adding together both of your incomes, even if one or both are the calculated average of an irregular income, gives you the first number you need for creating your family budget.

Step 2: Add up your necessary expenses

Now you're ready to calculate your family's baseline spending. This is the minimum you need each month for necessary expenses and includes both fixed expenses and variable necessities.

Start by recording your fixed expenses. These include your rent or mortgage, car payment and insurance, as well as regular expenses for childcare.

Then, calculate the monthly average you spend on variable necessary expenses, which may include bills, medications, groceries and transportation costs.

Your family's specific costs will vary based on your needs and situation. For example, you might prioritize spending a little extra to send your kids to a daycare that's closer to home, even if there's a less expensive one farther away. When you add all these necessary monthly costs together, you have your baseline spending number for living expenses.

Step 3: Create a savings goal

Now it's time to plan for savings goals. Your first goal should be an emergency fund with 3 to 6 months' worth of living expenses. Multiply your baseline spending number by 3 or 6 to determine your emergency fund savings goal. Compare that goal with your current savings account balance to see how much you still need to save.

Calculate how much to put aside toward your family's emergency fund each month, and add that amount to your fixed expenses.

This is also a good time to set other savings goals. Are you hoping to take a fun family trip to the Grand Canyon? Make that a specific savings goal. Are you trying to save up for your kids' college education? Create a goal for that, too. 

Figure out what goals matter most to you and your family and how much you can comfortably set aside each month for your additional savings goal. Then, make it a line item in your budget. Doing this will help you get in the habit of prioritizing your savings.

Step 4: Plan your discretionary spending

Discretionary expenses include things like entertainment and dining out. It's easy to go overboard with discretionary spending—especially when your kids have an endless appetite for fun and aren't yet old enough to understand that many of the things they want to do cost money. That's why it's so important to plan out what you spend on these activities.

To plan effectively, you need to know more than your previous spending amounts. For instance, maybe you spent over $500 last year on extracurricular activities for your children, including ice hockey equipment for your daughter and camping trips for your son.

Instead of assuming that this is just how much you spend each year on your kids' activities, use your past spending as a jumping-off point. You can decide if previous expenditures were reasonable or too high. You can also start working on strategies for adjusting these expenses, such as asking your kids to contribute or finding lower cost options.

Once you've calculated these numbers, you can add them to your budget.

Step 5: Make adjustments

If the spending amount—including necessary expenses, savings and discretionary spending—is lower than your monthly income, you have a balanced budget ready to implement.

But if planned expenses exceed income, start making adjustments. Tweak your discretionary spending first. Then work to reduce necessary expenses by taking advantage of discounts, by negotiating with service providers like your internet or cell phone service provider, or with careful shopping. Keep going until you have a workable budget.

Put your plan into action

After running the numbers, it's time to implement your budget. This means tracking and reviewing your spending to make sure you're sticking to the plan. Set aside one day a week to discuss the budget with your partner and make adjustments as a team.

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This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.