If you’re the lucky duck who was put in charge of your family’s finances and need to set a budget, but have quickly discovered that you don’t know where to begin, then this post is for you!
There’s several reasons why you may be the one to be charged with such an important task. You’re either the smartest adult in your relationship, better with money and numbers, the most conservative with spending, or you simply have the most time to commit to managing the books. Either way, no doubt this job is an important one for the family.
Keep reading and learn how to successfully put your finances in check, keep your sanity, and keep your bank account in the black.
Invest in a personal finance program.
I highly recommend you use a personal finance software to help keep you organized and on top of what’s going on with your money. There are plenty to choose from and appeal to different styles of organization.
I have had great success with the web-based app Mint.com. It is free to sign up and seamlessly integrates with your bank accounts and other “bill” accounts, such as your mortgage, cell phone, utilities, etc.
What I like the most about Mint.com is it’s budgeting capabilities. After the initial setup, you can easily see how much you have for budgeting and then set reasonable budgeting goals. With the money left-over, you can identify ways you’d like to spend that money such as investing, saving for a vacation or home improvement project, etc.
You Need a Budget (YNAB) is another web-based program that offers features similar to Mint.com. YNAB syncs with your bank to provide up-to-date information on where your money is going, you can easily create money goals and tracking, and they provides teaching opportunities along the way to help you manage your money better.
If you’d like a more robust personal finance software program, I suggest you check out Quicken. This tried-and-true offers several software programs depending on the extent of your finance needs.
The most basic and easy to start with is the Quicken Starter Pack 2018. This software is available for Mac and PC, and the app’s compatible with all smartphones. It’s perfect for just getting started with organizing and managing your home’s finances.
Identify the “must pays”!
If you’re using one of the programs I listed in Step #1, then you’ve already synced your bank account and you can see how much income is accrued each month.
Before anything else, plug in your BILLS first; utilities, mortgage or rent, car payments, insurance, cell phone, tuition/school, saving, and any thing else with recurring fees.
Many of your online bills can be synced with these programs as well. Pay close attention to where on the calendar these payments are due, ESPECIALLY if they are set to auto pay. If you’re a paycheck-to-paycheck household (like many of us), one of the worst things ever is to “forget” about a bill that is set to auto payment and spend your money on something else resulting in an OVERDRAWN ACCOUNT (ugh, literally the worst thing). In this case, not only will you most likely be on the hook for a late fee, but in many cases your credit will suffer as well.
So, now that you’ve synced your bank account, and inserted or synced all of your online (and offline) bills, you have a pretty good look of your financial state, or better, how much “disposable income” you have to work with.
Here’s where these programs really pay out. After your bills and other incidental fees, take a look at what’s left over. Now think about how you use money, in general. Read on…
Acknowledge your spending habits.
With Mint.com you have the ability to look back at your spending pattern over the last month, few months, year, etc. All of your spending will go into a categories, such as groceries, restaurants, gas/convenience store, coffee, kids activities, etc. These are customizable as well.
One of the most useful feature of these programs is exposing the categories you don’t realize you’re spending so much money on. I know for me as SAHM, I can get carried away with dining out for lunch. So setting a budget for restaurants was HUGE for me! This way, once I hit that budget limit, Mint.com will immediately alert me that I have either met or exceeded my budget for dining out. And because I keep my budget pretty tight, I treat this alert as a command from GOD to not spend another dime in a restaurant for the rest of that month. I know that sounds hella dramatic, but this is the only way I have managed to stay on track and avoid those pitfalls.
To continue, look at what you historically spend money on. One of my most important budgets is groceries and it probably should be yours considering we can’t live without food. I spend a very consistent dollar amount per month on groceries, only fluctuating by $100-$200 each month depending on what’s going on. So it’s very easy for me to set a monthly budget for groceries.
If your monthly grocery spending is not as consistent, then you need to set a very realistic food budget. One rule of thumb in determining how much you should spend on food is to break it down per person, per week. One conservative amount is $25 per person, per week. Or $100 per person, per month.
Keep in mind this is just for food! We buy other consumable products at the grocery store, such as toilet paper, dish soap, shampoo, school supplies, etc.
It may take a few months to get a handle on this particular budget, but once you have a realistic food budget then you can inflate this slightly to accommodate the other consumables you will need for the month.
Next, at looking at your history, what other categories are your spending falling into? Kids activities such as dance lessons or sports equipment, restaurants/fast food, shopping (either home goods or clothes), self-care services, etc are some of the most obvious to identify.
Now ask yourself this hard question: After identifying your income – bills – grocery budget, will your disposable income support this spending? In other words, can you afford to pay for your kid’s piano lessons, dine out 4 x month, get a mani/pedi every other week, AND save for summer vacation?
You most likely have some top priorities in there, which is good! If it is important to you then set it as a recurring “Bill” instead of a budget, such as activities that you pay for on a monthly basis (gym fees, lunch with Mom, etc).
Everything else needs to be budgeted. The beauty of using a service such as Mint.com is that you can see in real numbers how and where to spend your money. And after setting your notifications, it is almost impossible for you to overspend because they will tell you when you’re reaching your budgetary threshold for a particular category.
Want to save up for something special? You identify the dollar amount you want to set aside each month, and then you’ll know what’s left over to put into other budgets. It’s an absolute breeze and the only way I’ve found to stay organized and stay out of the danger zone.
So what do you think? Is there another challenge you have with your family/personal finances? Tell me what it is!