Family Budgeting: A Practical Financial Guide

Brad Homer

Budgeting doesn't need to be complicated. You don't need a master's in accounting. You don't even need a computer. Pen and paper will do. A good family budget performs the following functions:

- Keeps your checking account in the positive
- Helps you get out of debt
- Helps you save money for the future
- Helps you spend your money on what is most important to your family

There's not much else to it. As long as your family budget meets the above criteria, you've accomplished a lot.

How do you create an effective family budget? First of all, avoid convoluted software programs that want you to devote an entire weekend to categorizing, analyzing, and so on for the sake of creating the perfect budget. Perfectionism, when it comes to budgeting, is a huge waste of time. Reality has a funny way of sometimes not giving a damn about what you've gotten written down in your budget. So, relax and just give it your best shot.

- List your income, how much and when during the month that you receive it.
- Then, list your recurring expenses - how much, to whom and when during the month that you pay them.
- Next, ballpark any other expenses you can come up with off the top of your head - things like groceries, gas, etc. and list those too.

All of these steps can be done with just you and your spouse, a pad of paper and a pen or pencil. If you want to get a little fancy, a spreadsheet or simple budgeting software can help a lot.

- Add up your income and subtract all your expenses in one monthly total.

That's it - you've now created a rudimentary budget. If you're in the negative you know you've got a problem. If you're in the positive, you're either doing really well or you've forgotten something. Keep working on your master list until you're comfortable with it. Checking your budget against your online or paper bank statement can be very helpful in finding things you've forgotten.

Since this is a down and dirty, practical guide for your family budget, I'll throw in a few more suggestions to help you along the way in the months to come as you refine your raw budget into a beautiful work of art:

- Keep it simple. Having 150 categorization buckets make financial charts look pretty but they won't give you much more than a headache. This is a practical family budget we're talking about - not a second job filled with painful number crunching.
- Stop using your credit cards and make a plan to pay them off - permanently. You've got better things to be doing with your money than giving it away to credit card companies.
- After paying off your credit cards, start saving at least 10% of your gross income. Invest it wisely (401Ks, employer matching stock plans, etc.) to ensure a safe and good return. Everyone's situation is different, so you should obtain the advice of a professional financial advisor before making any major decisions.
- Become aware of the concept of cash flow. You will need to forecast your daily checking account balance for your budget to really sing; this is where spreadsheets and budgeting software can help most.
- Always keep some fun money in your family budget. A draconian, taskmaster budget can quickly kill everyone's enthusiasm for following it. A good family budget can greatly enhance the quality of your family life.

There are many more details that we could go into, but the above is the meat and potatoes, practical side of creating an effective family budget. Follow the above tips and create a basic, easy to manage budget for your family today!

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Brad Homer offers free-to-try budgeting software to help you quickly and easily with your personal financial planning. At his website you can also find more personal finance articles like this one. (c) 2007 Homerworks LLC. All rights reserved.

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