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Budgeting as a couple can be hard. Add kids into the mix, and keeping your finances in line might seem even more daunting. But it doesn't have to be that way.
Creating a budget just takes a little time and dedication—and pays big returns when it comes to achieving your goals. Whether you're budgeting for just you and your partner or your whole family, a few key steps can make the process much easier.
Establish a Long-Term Budgeting Strategy
How you choose to track your budget is up to you, but make sure whatever strategy you pick is sustainable for the long term. You can use an online budgeting tool like Quicken, or you can track all your finances in an Excel spreadsheet or even with a pen and paper. Budgeting can take some time to show results, so finding an accounting strategy you'll stick with is vital to success.
Once you've chosen a method, your budget should contain the following core elements:
- Money coming in (all income sources)
- Money going out (all bills)
- Plans for saving and paying off debt
- Allowance for emergencies and discretionary spending
- Allocation for personal and family goals
While each family's budget will differ, accounting for all five core spending categories will ensure you cover your financial bases and still have room for extra expenses as they arise.
The basics of budgeting are simple: First, calculate the money coming in each month; then calculate how much you have to pay for all your bills. Subtract your total monthly bills from your total monthly income, and distribute whatever you have left over to other spending categories, such as additional debt payment, savings, emergency fund, entertainment and so on. Make sure to clearly track how much you save in each category every month; that way you'll be able to spend according to what you have and not deviate from your budget.
Make a Plan for Paying Down Debt
It's not unusual to have a good portion of your monthly budget go toward tackling past and new debt. When calculating your budget, it's important to account for debt payments because getting behind on payments can hurt your credit and make achieving your financial goals significantly more difficult.
When you sit down to figure out your budget, make sure you understand how much debt you and your partner have, and create a plan for paying it off. You can take an aggressive approach and pay a lot each month to slash your debt, or you can take a slower approach and pay the minimum so you can also focus on saving. Your current financial situation and how much extra income you have to work with each month will help determine which route you choose. But be aware that stretching debt payments out will cost you more in interest down the line.
Put an Emphasis on Saving
Having kids can be expensive, and those costs aren't going away anytime soon. Many parents support their children through their college years, whether with food costs, housing or tuition. Putting an emphasis on saving money every month can help ensure that you're ready for these expenses when they come.
Think about the possible expenses your children will have as they grow. These may include everything from braces to a first car to college tuition. Put a set amount of money in a designated place each month to work toward that goal. In the case of saving for college, consider funding a 529 plan from early in your child's life.
Plan for Emergencies
From turbulence in your career to injuries, life can be unpredictable. It's important to be financially prepared when something comes up. That's why you need to make room for an emergency fund in your budget. This may help you avoid relying on costly financing if you or someone in your family ends up taking an unexpected trip to the hospital or if you get laid off from your job and need a little breathing room before you move into another position.
No matter what you ultimately use this money for, having some cash ready for an emergency can make dealing with difficult situations much easier and may even help you save some money on expensive last-minute spending.
Plan for Discretionary Spending
Budgeting doesn't have to be restrictive, and as long as you plan for a few things you really want, you may be able to fit it alongside the rest of your monthly goals. Creating a discretionary spending category (or categories for a more precise budget) will help you account for those splurge purchases you inevitably make each month without letting it impact your overall goals.
Discretionary spending can apply to purchases that you want rather than need. These might include things like dinners out with the kids, date nights for you and your spouse, and any extra monthly purchases that may come up.
Set Family Goals to Reward Successful Budgeting
Budgeting helps you organize your household finances. You can also use it as a method to plan and save for things you want and need. Setting a family goal to work toward can make budgeting fun (yes, budgeting can be fun!) and can help you get some satisfaction when you achieve your milestone. For example, think about a shorter-term goal that you and your family would enjoy—maybe a vacation or house upgrade—and if you have extra money each month, put it aside until you reach your goal.
If you and your partner are ready to create a budget for your family, consider also getting a free copy of your Experian credit report and FICO® Score☉ to get a clear image of your current debt and credit. This will help you get all the cards out on the table when beginning the budgeting process.