Many people are satisfied with their salaries but when they open their bank accounts a few days later, they wish the world would end. If you’re in a similar situation, don’t worry. You’re not the first person nor the last one who doesn’t know how to plan a budget.
In this article, we will provide you with some budgeting tips that can help you save money and afford your dream trip to Italy.
First of all, what is a family budget?
You can’t learn how to budget money, if you don’t know what this term means. A family budget is a strategy for your whole household — not just you. If you truly want to stick with a budget, then you should have everyone in the family involved and committed.
Why is it so important?
Financial planning is a crucial part of any family. Just like you make careful decisions about how to allocate your own salary, the same care should be given to the salaries of everyone in your family. It becomes an essential part of parenting, too! Teaching your kid how to budget their expenses will help them have a higher chance to succeed in life.
Quick tip: Using budgeting apps could benefit your cause. Some of the best budgeting apps can do many things “on your behalf” and ease your life.
How to plan your family budget?
Okay, before you do everything, you should know how to plan your budget. Whether you will allocate some money to buy Dogecoin or get involved in other cryptocurrency investing opportunities, it’s crucial to put things right from the start.
1. Calculate your income
Before moving onto step two, you’ll need the following information:
- Each partner’s monthly income
- Any additional sources of income (side hustle, business, etc.)
- An average monthly net income for each.
If you have a side hustle with ranging income, then it becomes a little bit tougher to calculate it. In such cases, you’d better draw the line and make an average. If not sure where the average is, always assume the lower income.
2. List your expenses
After you’ve identified how much money is coming in, you can focus on making a budget for expenses. Consider your rent or mortgage, bills, and other necessities such as groceries and childcare. You should prioritize core expenses, though. Food, utility bills, and groceries should be put ahead of your Netflix subscription and eating out.
3. Track your expenses
If you’re in charge of a household, you might find it challenging to stick to your budget. With multiple people sharing one or two bank accounts, it can be hard to get everyone on board with the same financial goals and vision. In such cases, it becomes necessary to track your expenses. But how to do so if it is so hard? Well, it is not! As we have mentioned earlier, a budgeting app could be a miraculous panacea for financial problems.
Quick tip: You should enter your costs every day. Otherwise, it makes no sense to get a budgeting app.
Main types of family budgets
Of course, there are many family budget types, and you can choose one that suits your family best. Let’s see the most popular among users.
Zero-based budgeting is a technique in both personal and corporate finance, usually employed by the government or business leaders. With this method, you start with zero dollars and increase or decrease each allocation from there. It’s perfectly applicable for your family, since you will know how much money you have generated and then you can allocate it. Of course, a zero-based budget doesn’t mean spending all of your money on necessities. Instead, you can save a certain amount (what’s left) for other purposes, like holidays, retirement, etc.
The 50-30-20 rule is a method for budgeting that can help you manage your money effectively, and the best part is that it’s just as easy. The basic rule is to divide your monthly after-tax income into three spending categories: pay for your expenses (50%), spend on yourself (30%), and save (20%).
The “Envelope” budget
An envelope budgeting system (otherwise known as cash budgeting) refers to a way of managing your income and expenditure by classifying your purchases into budgets. The idea is to put money aside in envelopes dedicated to each of the budgeted items, and when you want or need something, you take out the money from that envelope only.
Planning a family budget is not the easiest of tasks, we have to admit. When working on a family budget, be sure to make it simple and easy to understand. Even if you think that tracking each penny seems impossible, start with your major expenses. That might be the answer to all questions.