How to Create a Family Budget

October 2, 2023

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“Build a budget” is one of the most common pieces of personal finance advice. But a Gallup survey found that about 2 in 3 households don’t keep a detailed budget.

It’s true that some families never start. But others give up on them after busting their budgets month after month. If you’ve ever wondered how to create a family budget that works, you’re in the right place! 

We’ll help you set up a family budget that fits your goals in just a few steps. Then, we’ll walk through the process of making sure you can stick to your budget. The process is easier than ever thanks to different budgeting tools. If you find yourself needing to make some changes? We can help with that too! 

Let’s dive in. 

How To Create a Family Budget in 8 Simple Steps

The concept of budgeting is simple: create a spending plan for your dollars. But if you build your budget incorrectly, it can lead to lots of wasted time and even more frustration. 

Here are the steps you can take to create a family budget faster than you think!

Step 1 – Find Your Family’s Why

For a lot of people, budget is a dirty word. Why? Budgets feel constraining and restrictive. If your budget is feeling like a form of financial torture for your family, there’s a good chance you skipped the most important step of budgeting: finding your why

As a family, you want to establish your goals. What do you hope to do for yourselves with a budget? Long-term goals might include things like saving for your kids’ college funds or buying a new family car. Short-term goals might involve affording a much-needed family vacation or stashing away enough cash to have a debt-free Christmas. 

Decide on your goal or goals as a family and write them down. Choosing your goal together boosts buy-in from all family members. Additionally, the visual reminder of your goals can help you stay motivated.

Make sure to revisit these goals regularly over the next few months of budgeting. That way, you can see how your budget is helping your goals take shape.

Step 2 – Calculate Your Income

Do you know how much money you make? It sounds like a silly question, but a lot of families operate on guesses and hunches rather than concrete numbers. That's why the next step of building your family budget is to calculate your income. 

Total up your paychecks for the month. You might also want to factor in side hustle income, as well. 

Of course, this gets trickier if your income varies. In that case, you want to work with your lowest numbers rather than your highest. That way, you know you can cover the expenses in your budget no matter what. If you end up having a high-income month, that’s more money to stash in your savings or pay down debt.

Step 3 – Examine Your Expenses

After you calculate your income, it’s time to look at your expenses. As with income, expenses can also take some families by surprise. 

To get a ballpark approximation of your spending, you can look at your credit card, debit card, and checking account activity for the past few months. Total up your spending, making sure to add in the spending across your accounts if you have multiple.

It is worth noting that this math doesn’t always cover what you spend in cash. Still, your calculation should give you a fairly decent ballpark amount. 

To get a more precise look at your expenses, you can also commit to tracking your spending for the next month. Don’t judge your spending or try to eliminate expenses. Instead, do your best to capture a full and accurate picture of what you currently spend. You can do this manually or with an app. 

Step 4 – Build a Budget

Once you have an approximate number to work with for your income and a ballpark amount for your expenses, it’s time to build a family budget. 

If you want to know how to create a family budget effectively, you have to understand budget categories. Of course, no two budgets are the same. Still, one budgeting rule of thumb that may serve you well to start is the 50/30/20 rule. 

With this rule, your budget can be thought of as three broad areas:

  1. Needs – 50% of your budget goes to needs, such as housing and groceries. 
  2. Wants – 30% of your budget is for wants, including fun money and sinking funds.
  3. Saving – 20% of your budget makes up your savings, including investing for retirement and saving for short or long-term goals. 

Consider the 50/30/20 rule of thumb and then list out the different categories that fit your family’s needs, wants, and savings goals. 

Some budget categories might include:

  • Rent
  • Groceries
  • Cell phone
  • Internet
  • Student loans
  • Insurance
  • Dining out
  • Daycare

Of course, this list is incomplete. The key is to examine your own needs and wants, as well as your savings goal. Build your budget categories and budget amounts around the specifics of your family.

Budgeting Tools

After you have a general sense of your budget categories, it’s time to use a budgeting tool to create an actual budget. For some families, that might mean it’s time to fire up Microsoft Excel or Google Sheets.

You can also use a budgeting app, such as Monarch Money or YNAB. The biggest benefits of using an app are that it can save a lot of time and reduce family stress.

All budgets involve a bit of guessing and checking when you’re first getting started. Working with an app allows you to benefit from people who’ve budgeted before you, though. If starting from scratch sounds intimidating, definitely consider a budgeting app. 

Step 5 – Track Your Spending

One of the biggest mistakes people make when they want to create a family budget is to set up a budget at the start of the month…and then ignore it. Instead, take an active, eyes-open approach to your budget by tracking your spending throughout the month. 

Many times, budgeting apps take care of this for you. In other instances, families choose to track their expenses manually, use cash envelopes, monitor spending with tools built into debit or credit cards, or rely on a separate spending tracker app. 

No matter what you choose, you want to make sure that you monitor your money as the month goes on. That will help you avoid huge surprises at the end of the month! 

Step 6 – Review Your Month

Once you create a family budget, you’re not off the hook. Instead, you want to review your budget monthly. The first few times you do this, you’ll probably need to set aside a good chunk of time. 

We can hear you groaning already.

These budget check-ins don’t have to be a drag. Make it fun! Some couples review their family budget with wine and appetizers. If you want to make it a full family affair, you can tie it into pizza and game night. 

The most important thing to do is to compare your actual spending with your budget. This is where budgeting apps can be a huge timesaver because most of the data is compiled for you!

No matter how you keep track of your budget and your spending, the reflection process should be similar. How close were you to staying within your budget? You also want to remind yourself and your family about your budgeting goals. Keeping that why in mind is an excellent motivator. 

Click here for more fun budget session ideas.

Step 7 – Recalibrate Your Budget

After comparing your actual spending to your budget, it’s time to recalibrate for the next month. If there were areas that were a major budget bust, consider adjusting the amount of money you set aside for them–or reining in your spending moving forward. 

Once you’ve figured out how to create a family budget and made your initial adjustments, you can probably use the same budget from month to month. However, any time there is a major life event on the horizon, you want to consider drafting a new budget. 

Step 8 – Celebrate Your Wins 

Now for the best part–celebrations!

Families often mistakenly only celebrate when they hit their long-term financial goals. We would encourage you to celebrate your journey instead of only waiting for the destination. This can also boost buy-in from partners or children who feel less than enthusiastic about a budget. 

So what are some things you can celebrate? Everything from building a budget for the first time to staying on track with a previous month’s trouble spot is worth celebrating. 

Of course, don’t let your celebrations sabotage your budget. Frugal fun ideas like pizza night, family game night, exploring new parks, impromptu dance parties, or even a bit of extra screen time are all ways to reward your family without breaking the bank. 

Closing Thoughts on How to Create a Family Budget

Are you ready to finally build a budget that works for your family? Following these simple steps to set up a budget framework that matches your family's goals can help.

If you really want to streamline the family budget process, check out these best budget apps for families to see how the app can help you hit your family's financial goals. 

What budgeting tools do you use? Have any questions on how to create a family budget that works for you?

Please let us know in the comments below.

Andy Hill

Andy Hill, AFC® is the award-winning family finance coach behind Marriage Kids and Money - a platform dedicated to helping families build wealth and happiness. With millions of podcast downloads and video views, Andy’s message of family financial empowerment has resonated with listeners, readers and viewers across the world. When he's not "talking money", Andy enjoys being a Soccer Dad, singing karaoke with his wife and relaxing on his hammock.


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