How to Make a Family Budget
The family budget is a tool that allows you to control and track expenses, manage the family income and facilitate the act of saving and investing. It involves an exercise of counting incoming and outgoing money at the end of each month and ensuring that the sum of the family income is bigger than the expenses.
As part of personal finance, drawing up the family budget is an exercise that requires discipline, self-control and commitment.
Below we present some tips on how to prepare your family budget:
- Identify all monthly income, including salaries, allowances and bonuses, interests from financial investments and real estate rental income;
- Identify all monthly expenses, including rent payment, water and electricity consumption, food, shopping, cinema;
- Group the expenses into three categories, to facilitate their adjustment:
- Fixed expenses - expenses that must always be payed, such as rents, fees, expenses on outstanding loans, insurances;
- Variable expenses - expenses that must be paid, but whose values vary according to the choices made by the household, such as food expenses, water, gas and electricity;
- Unforeseen expenses - expenses that can be reduced or eliminated (as concerts, trips) and unexpected expenses (health expenses, fines).
- Assess your financial situation by adding all income and subtracting all expenses. It is advisable that a balance between earnings and expenditures is reached;
- Develop your household budget on a monthly basis, considering an annual perspective of income, expenses and savings goals:
- Avoid income overestimation;
- Avoid expenses underestimation;
- Set an amount to save each month, which should be treated as a fixed expense;
- Plan your budget in order to achieve saving goals.
Find a model for the monthly family budget in Excel, which can help you to plan and control your personal finances to achieve your saving goals. See here »
Note that the proportion of each type of expenditure in the family budget is relevant. The higher the representativeness of fixed costs on the total expenditure, the less the margin to adjust your budget in order to increase your savings or deal with any unexpected loss of income.
Regardless of what your income is, it is always important to have savings, because:
- It permits you to accumulate wealth to be spent in the future;
- It permits you to set goals in the short, medium and long terms;
- It ensures a more peaceful and safe future;
- It helps you to achieve your personal plans;
- It increases your capital with return on investment;
- It allows you to have a reserve for emergency cases;
Saving is more than spending less, although this is one of the challenges involved. You must answer questions such as "how much should I save?" and "where do I invest my savings?"
Here are some saving strategies:
- Establish measurable and achievable saving goals in the short, medium and long terms, to be reached in a predetermined period of time;
- Plan and control your personal finances in order to achieve the saving goal. Save a certain amount each month for this purpose;
- Prepare a monthly budget, taking care not to spend more than you receive;
- Prioritize savings by separating predetermined amounts as soon as you receive your income, instead of just saving the remaining balance at end of the month;
- Try to diversify your income sources;
- Be prudent and economical in your expenses, starting with the superfluous expenses and other variable expenses. Small reductions in the daily expenses make a big difference;
- Avoid waste, extravagance and impulse purchases;
- Create a working capital to cover unforeseen;
- Plan ahead leisure and entertainment expenses;
- Plan retirement in advance;
- Avoid temptations. Keep your savings out of your reach;
- Apply savings in financial instruments. Find out about the various saving solutions available and compare interest rates, application deadlines, benefits, minimum amounts and access conditions to see which best suit your financial situation.