We’re discussing how to plan a family budget in 4 steps! Our society encourages debt. Instead of figuring out a way to get out of debt with a family budget, we continue to pile it on. The same goes for our government.
Currently, the United States is projected to hold about $21 trillion in debt. And, although no one could have predicted something as catastrophic as the Coronavirus impacting the world, the problem is only getting worse as it continues. This debt number is projected to increase to at least $32 trillion by 2030.
This blog post is all about how to plan a family budget.
Understanding Spending Habits
So, not only is our government in debt but we, as Americans, are in debt ourselves. This is only being passed on from generation to generation! Initially, I believed I was alone in my struggles with debt, but as a working mom, it is important to understand debt is a serious obstacle facing 87% of American families who are attempting to attain financial success.
Most U.S. households have the same major spending categories. Depending on your circumstances and stage in life, however, you may be spending a ton more on childcare, college tuition, or healthcare. Something that may not come as a surprise is that life often throws unexpected expenses at us, which makes saving for them difficult.
A Federal Reserve survey of household finances indicates that over 40 percent of Americans could not cover an unexpected expense of $400 in case of an emergency, with cash, savings or a credit card charge that they could quickly pay off. Most of these unexpected expenses end up being charged to a credit card.
Understanding Credit Card Debt
The average American family carries a balance of between $7,000 and $10,000 on all their credit cards. Over $1,000 per family goes only to paying the interest each year. And that’s just the average–some people owe much more!
There are approximately 530,000 families turning to bankruptcy each year as the solution to their credit woes. Over 90 percent of Americans’ disposable incomes are being spent paying back debt. Currently, Americans collectively charge over $1 trillion every year on their credit cards and owe more than $500 billion in interest alone.
When you add credit card debt to the regular bills we all have to pay each month—which can tax anyone’s budget—this results in some bills going unpaid and others being paid late.
Even Celebrities Have Issues With Debt…
Did you know that in 2003, Mike Tyson was forced to file bankruptcy? With the media reporting that he was worth over $23 million.
Michael Jackson, the king of pop music, died in 2009 with over $400 million owed to creditors. The “Thriller” singer is said to have been a millionaire who lived the lifestyle of a billionaire.
What is common in both these real-life anecdotes? It tells us that you can still have financial problems even if you are earning millions of dollars.
If we adopted a mindset that forced us to prepare for the unexpected, things would be better for us. Anyone in any financial situation can do this, especially working moms.
How to Build A Family Budget:
How can you prepare yourself and your family? By implementing a family budget. Anyone in any financial situation can do this, especially working moms.
50/30/20 rule:
One oft-used rule of thumb in budgeting is the 50/30/20 rule. Under this rule:
- Half of your income goes to necessities
- 30 percent of your income goes to splurges and fun
- 20 percent of your income goes to savings and investments
When creating your family budget, it’s easy to look at your expenses, like utilities, food, transportation, clothing, and entertainment, and start slashing. Although this budget may look good in theory and build savings quickly, you have to ask yourself the following: Will I be able to stick to it? What will it do to my quality of life? After all, splurges and fun are factored into this rule of budgeting at a higher percentage than savings and investments for a reason.
Even as a working mom, you can have a workable budget to help you guide your spending and build your savings while still enjoying your life. Unless you are in dire financial trouble, there’s no reason setting a budget should be painful.
So the question is, how do you prepare and stick to a family budget?
Steps to Preparing a Family Budget:
Step 1: Calculate your total family income.
You cannot prepare a family budget without knowing what your total monthly income is after taxes.
Step 2: Calculate your total family expenses and allocate them to ‘expense buckets’.
Next, analyze your purchases for the last month and consider which of them made no sense. By doing this, you can identify money you can save to allocate elsewhere.
Once you have a picture of where your money is going, it’s usually clear to see where you can make changes.
Step 3: Calculate the net difference.
Subtract all the typical monthly expenses from the family after-tax monthly income. If you have savings left at the end of the month, that means you are a net saver. You can skip to step 4 in this case.
If the family expenditure is more than the family income, figure out which of the expenses you can cut back on from step 2. Small sacrifices can add up to significant savings.
Step 4: Determine what to do with your savings.
You can use your monthly savings to pay off your debt, credit card bills or even establish an emergency fund to cover those unexpected expenses you now expect to happen.
Once you are in a place where you feel more comfortable then it is safe to invest some of your savings to generate dividends and capital gains which will increase your family’s wealth in the long run.
Realistic Budgeting Tips:
Many families successfully create a monthly budget for themselves to follow. But the majority of them fail at implementing it.
Some helpful techniques to stick to your family budget:
1. Automate your savings. Every month, transfer a certain portion of your paycheck automatically from your checking to your savings account. The rule of thumb for withdrawing from your savings account should be only during emergencies.
2. Use budgeting tools like mobile applications to keep track of your daily expenditures. Use your Saturdays and Sundays to call “family budget meetings” and discuss the weekly progress with your family.
3. Start a savings competition with a family in a similar financial situation as you are in. Update each other about the progress you have made each week. The best results come out when you are competing with someone.
4. Like in the case of a food diet, you can have a “cheat day” every month in which you and your family can enjoy. Fix the budget for that cheat day. Something like $200 in a day. It will depend on your income as well obviously. Remind your kids about the “cheat day” from time to time to make them look forward to something every month.
Conclusion
You should be aware of where your money is coming from and where it is going, at all times, because when you aren’t aware of that information, you are basically giving up control of your financial situation.
Even after creating a family budget, you’ll want to do routine check-ups to see if and where you can cut some unnecessary costs. Some may say that creating a budget is easier said than done. In truth, having an idea in mind of where you and your family currently stand will hopefully be the ultimate driving force in just how successful you all can be at implementing and sticking to a budget.
Sticking to your family budget is not as hard as it sounds. All you need is a little discipline, willpower, and some positive reinforcement that the family decides on to push you all, even on those hard days.
This blog was contributed by Asha Gilliam of Mommy Talks Podcast.
A short time ago, I was like the other 63% of U.S. parents, raising my kids without either of their dads in the home, living paycheck to paycheck to support my family. After a near-death experience, I realized if my sons became motherless they would be destined to endure the same financial struggles I had because of my conditioning. A series of events flipped my world upside down, it was during this time in my life that things became crystal clear to me. I realized that in order to learn how to have my money make money for me by investing in assets instead of liabilities, I had to figure out where my money was going.
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