Creating a Family Budget: 5 Key Questions to Ask
If you've never paid close attention to your spending habits, creating a family budget can be an enlightening experience. Relying on a budget helps you understand where your hard-earned money actually ends up each month, and it can also help you find ways to save for a large purchase, like a vacation or a new home.
If you'd like to start mapping out a plan for spending but aren't sure how, here are five questions to ask at your first family budget meeting.
1. How Much Do You Have to Spend?
Understanding how much money you have to spend is a good place to start when creating a budget. Generally, your after-tax income, or your monthly take-home pay, is the largest source of cash coming in. But don't forget other potential sources of income, like part-time jobs, investment income or tax refunds.
2. How Much Do You Actually Spend?
Money comes in and then some of it goes back out. Determining exactly how much you're currently spending each month is the foundation for your budget. First, identify all your mandatory month-to-month household bills, like your mortgage, utilities, credit card payments, gas and car loans. Then, look at your expenses that are choices and not necessities. For instance, do you go out to eat twice a week or frequently purchase apps for yourself and your kids that are only used one time? Small daily expenses can add up to a surprisingly large amount over the course of a year, so it's just as important to get handle on your variable expenses as the fixed ones.
3. What Will You Need to Buy?
Aside from day-to-day expenses, do you need to make a big purchase soon? Is this the year you'll finally buy a house? You may have saved enough for a down payment, but you'll still need to budget for closing costs. If your car, dishwasher or heater is starting to make strange noises, you may need to put additional money in those budget categories. You can't predict the future, but you can try to map out what expenses you might have three, six or even nine months in the future.
4. What Are Your Savings Goals?
One of the biggest benefits of living on a budget is that it helps you find ways to save. Establish savings goals and force yourself to put money away each month, even if it means taking the funds right out of your paycheck. When you buy your dream home, or see your investments grow year after year, you'll be thankful that you took the time to set a budget and stick to your savings goals.
5. Is Your Life Likely to Change?
Once you understand your baseline expenses, think about how they might change in the upcoming year. Are you getting married or expecting a baby? Are you thinking of switching jobs soon? Any sort of life event can translate into a shift in your finances and should be accounted for in your personal budget.
Knowing the answer to these five questions will help you kick start your family budgeting process. If you'd like to take an even closer look at your spending, you should utilize a financial wellness tracker. This tool links directly to your bank account and will allow you to create a more accurate budget, based on your actual spending.