The COVID-19 pandemic has forced many families to take a hard look at their budget to ensure they are prepared for uncertainties. According to a recent study by Bank of America, 64% of Americans have changed their spending habits since the start of the pandemic.
Consider the following when creating and maintaining a family budget this year.
Creating your family budget
A family budget outlines how your money (income) is used to cover your general expenses such as housing, food, utilities and more. What is the goal of a family budget? To spend less than what is earned. Overall, a family budget can help the entire family financially succeed together.
Family budgets tend to be more complex than individual budgets since they cover additional individuals with more fixed expenses (expenses that are the same each month such as a mortgage payment or daycare costs) and variable expenses (expenses that can vary month to month such as utilities).
Additionally, family budgets will vary based on the age of your family and the income that is brought into the family. For example, families with young children will have additional expenses for childcare, diapers and more whereas families with teenage children will have to adjust costs for schooling, sports and teenage appetites. Family budgets tend to grow as your children grow.
Benefits of budgeting
Creating a family budget helps guide the amount of money your family plans to spend monthly in an effort to prevent debt while helping you save for future expenses.
Communicating your budget with the entire family helps teach everyone the value of money. (Not sure how to talk to your family about finances? Check out our recent blog post for ideas to get the conversation started.)
Short-term and long-term savings and financial goals guide your overall family budget. Similar to how your budget will change as your family grows, make sure to adjust your budget based on updates to these goals, too.
A popular budget method to consider when creating your family budget is the 50/30/20 budget. After combining take-home income, 50% gets allocated towards “needs” (such as rent), 30% gets distributed to “wants” (date nights for example) and 20% goes towards “savings or debt” (such as paying down a credit card). This intuitive method could help guide your family budget in order to achieve financial goals in 2021.
Considerations for your family budget
Components in a family budget typically include housing, childcare, transportation, health care, other necessities (such as food or clothing) and taxes.
Consider making adjustments early this year by reviewing essential expenses (those listed previously) and non-essential expenses (for example personal expenses, entertainment and gifts). Now is the time to cut back on non-essential expenses such as monthly subscription fees for various streaming services or last-minute takeout instead of cooking at home. Review our step-by-step guide for a refresh on ways you can further improve your budget.
Having a family budget is necessary to track spending but it also takes time. Reevaluate your budget often to ensure it meets the essential needs of your family. Adjust your family budget to help your family be financially stable in 2021 and beyond.
Feeling overwhelmed with your family budget? Schedule a meeting with a Verve certified financial coach for personalized help with your budget. Stay committed and focused this year and help your family financially succeed together.