You might think you are very good at saving money but if you don’t have an actual budgeting system that you follow thoroughly, saving up can be quite difficult. Organise yourself and your family so that you can pay your living expenses, pay off your debts on time, save money for the future and overall make your life a lot more enjoyable, without the anxiety of making ends meet. Prepare for emergency situations and secure your family. No matter if you’re trying to save up money for something or you just need a good family budget system, being organized is extremely important.
In this article, we will show you the 7 most important steps in creating a successful budgeting system that will work no matter if you have a family or you live alone.
7 important tips on managing your household finances
Set your goals
First of all, you should decide what exactly do you want to gain by organising your budget. Do you want to save money for emergencies or do you want to pay off your debt? Depending on the answer, we can separate the financial goals into two categories: immediate and long-range goals.
As you can guess by the name, immediate goals are the things that require money right away and they can be used for a luxury or a necessity. Long-range goals mostly include saving this money for the year ahead and either spending it slowly over the years or once on a big event in the far future. Those two goals are quite codependent – how you spend and save your money today will affect what you will have later on in the future.
Immediate financial goals on their own can be separated into different groups of spendings – obligatory, like your mortgage, other debts, monthly rent, bills, household supplies, food, cell phone, and child or pet-related expenses. These are the things you cannot delay in paying for. Then, you have the secondary goals that include non-essential expenses such as dining out, subscriptions, clothes, going on vacations, etc. Things you don’t necessarily need to spend money on and if you have more obligatory expenses and not enough money, you should consider cutting those expenses to make things easier.
Long-range financial goals might include retirement savings, investments – car or home, saving money to send your kids or even yourself to university or college, moving to another country, moving away from home, anything that will require a larger sum of money and is kind of far in the future. Planning for these long-term goals might include starting and contributing to an IRA or Roth IRA, seeking out grants and scholarships, as well as comparing interest rates for student loans for your child’s college education. As we said earlier, immediate expenses affect your money in the future. If you spend too much on non-essential items and don’t pay off your debts on time, for example, you will certainly face those decisions later on in life and possibly regret them.
Track your spendings
Now that you know where you want to be in the future, it’s time to see how you’re dealing in the present. See what are the things you spend the most money on. To make things easier, you can even divide your spendings into three different categories – fixed and variable committed expenses or non-essential (discretionary) expenses. The fixed ones are your rent, mortgage, debt, which are usually the same price each month. The variable ones are still essential, but the amount of money varies each time – one month you might need more gasoline than the other, for example. Lastly, discretionary expenses will include your gym membership, going out to eat with friends or spending the weekend out of town.
Put all of those expenses together and if the leftover money is not enough, reevaluate your way of spending money, as well as the things you might consider important but aren’t actually essential. We understand that it’s quite difficult to say bye to the things you love doing or buying, especially if you have kids that don’t really grasp the concept of saving money for the future. However, this is easily the most important step of it all because includes the acknowledgment of the things we are doing wrong and working towards a better future.
Spending more than what you earn is not normal and if that is the case, you will need a serious rearrangement of priorities. Ask yourself every time you will spend money if you really need to do this and if there is a cheaper alternative. For example, if you have the chance to make your lunch at home or walk to work, it would be a lot better to do so. See what memberships you can cancel that you don’t even use that much and relocate the money to places where it’s most needed.
Choosing a Budgeting System
So you’re up to the point where you’ve set your goals, you know the things you spend your money on, but how to keep all of this information organised? Luckily, there are many ways to do this but we will concentrate on the four basic ones that are proven in time to be the most effective and, of course, budget-friendly.
- A spending diary.
This is maybe the oldest budget tracking method in time and it’s the one the whole family can join into. You only a pen and a notebook. It would be easier to keep the whole family’s expenses in one notebook but if you have kids, you can encourage them to make their own and even turn in into a game. Help them craft an awesome looking budgeting diary and show them how fun saving money can be. You can even propose that they draw their dreams and goals so that everything seems more real. And for the adults in the family, you only have to write the expenses in whichever way would be easier for you to track them. You can split them by categories or by which person is spending the money. Find what works best for you.
- A spreadsheet.
This method might not be as fun for the kids as a crafty notebook but it makes things a lot easier for the adults as it does all the calculations automatically. The most used software is Microsoft Excel, of course, and you can find a ton of example budgeting spreadsheets on the Internet if you don’t know where to start. You can also use the Google Sheets system that would allow for other members to edit the spreadsheet online from any device. From the history option, you can also see who did what, which makes tracking a lot easier than an offline spreadsheet.
- A free online software.
And then there are some free web-based programs that are not created especially for budgeting but still do a pretty good job at it. We can recommend that you try either Mint.com or Manilla as they allow you to group all of your spendings, regardless of the category that they fall into and monitor them properly.
- A special financial software.
And lastly, you have the various software programs made especially for tracking and managing your finances but most of them are a bit tricky to use, especially for younger or older members of the family.
Make a thorough research to see which method would work the best for you and your family and stick with it.
Prepare for seasonal expenses
These are the type of expenses that come once or twice a year and are able to put quite a hole on your family budget. Holidays that include family gatherings, presents, decorations, etc., are usually the ones we spend the most money on. Will you be the host for a grand family dinner? Do you need to buy presents for all your nephews and nieces? If the answer is yes, then it’s a good idea to plan all those things ahead. It’s very individual as, for example, you may not have such a big family or you don’t celebrate as many holidays. When you sit down to make your long-term plans, take these things into consideration. Another seasonal spending, if you have children, are the school supplies. Some stuff you can re-use from last year, sure, but others need to be restocked every year like school books, new notebooks or even a laptop if your kid needs one.
Plan ahead
You may think that month-to-month can be considered as planning ahead and it kind of is, to be honest. But planning ahead usually means thinking about the years to come. One thing that everyone learnt in 2020 is that no matter how stable or organised your life might be, things could quickly turn around for the worse. We don’t want to sound negative or pessimistic but since this is the current situation for many households at the moment, we think it’s important to emphasise on the importance of thinking for the future. One of the things you can do is splitting your paycheck into multiple accounts, open a savings account, or if you’re more traditional, even an emergency piggy bank can do the work.
However, there aren’t only emergencies in the future. If you have young kids, what most likely awaits you in the future is a big graduation celebration, money for higher education, a wedding, etc. There are many big events in the future that can be stressful enough on their own but you can make them a lot more pleasant if you have the budget for them.
Be consistent and bring the whole family in
Getting started is relatively easy compared to actually sticking to your plan and even getting the whole family on board. Still, it’s proven that group activities and regimes are a lot easier to follow because you don’t have to count on yourself only. Make it clear to everyone in your family, including the kids, that this will be your new way of living and that everyone will benefit from it. Especially your children, who will have the chance to form a budget-saving mentality from a young age, making their future life a lot easier. Make sure that everyone follows through with the plan you’ve decided on, which should be agreed upon by all members of the family anyways.
Save money on cleaning
One of the things that could be eating out from your family budget is home cleaning but luckily, there are many things you can do that will decrease the amount of money you spend related to it.
- Make your own cleaning products – White vinegar and baking soda can do wonders both separately and combined. They can be used in the cleaning and disinfection of almost any surface, taking care of stubborn stains in carpets or clothes, and so much more.
- Clean up regularly – General wear and tear can actually destroy your appliances and furniture. Maintaining your oven or fabric sofa clean, or pretty much everything in your house, will expand their lifetime and you won’t have to worry about replacing them after a year of usage.
- Take care of stains immediately – If left untreated, stains can really put a hole in your budget, especially if you are living in a rented property. Most of them need to be cleaned right away or you will have this ugly stain on your beautiful wall for years to come, which will make your property a lot more difficult to sell if you’re thinking about it. Even if you are not, it will be a lot more expensive to clean up a 5-year old stain than one from a second ago.
- Buy in bulks – Keep an eye out for discounts so you can supply your home with cleaning products for at least a year. Many warehouses sell them in bulks and you will really save money even if it seems like you’ve given a lot in the first place. It will still be cheaper than buying your detergents every month or so.
- Store your cleaning supplies properly – If you do want to use your cleaning detergents for a long time, make sure they are stored properly, that there are no leaks, they are away from direct sunlight and extreme temperatures. What’s the point in buying a huge bottle of laundry detergent if it loses its powers in a few weeks because it’s been standing in the sun for so long?
- Invest in reusable tools – Using disposable cleaning tools might be a lot easier because you just throw them away after each use but when thinking about the long term use, they don’t make a lot of sense. It’s bad for the environment and for your budget. Instead of using paper towels or baby wipes, buy a couple of microfibre cloths that you can wash in the machine. Switch your mop with disposable pads for one with reusable that can also be washed in the machine. Buy a metal bucket, instead of a plastic one. Go around your house and see which ones you can change for a more eco and budget-friendly version.