Creating our family budget has always been my husband’s “responsibility”. He’s the accountant, he thinks, sees, and breathes in numbers. I always just left it up to him. The extent of my contribution was to ask if I could buy we had money to buy something. I didn’t even think about the budget when I went grocery shopping. However, for the many years, we’ve been married, we were always off-budget for something. Always struggling with something being over budget. Notice how we were always over and never under budget. I realized that it was because I was not an active participant in our budget planning and execution. A week before the new year, we sat down and actually planned it out together. So I wanted to share our 7 best tips for creating a successful family budget.
Now, creating a budget is easy, it is sticking to the budget that is the most difficult. Did you know that majority of families in Canada and the United States do not stick to a monthly or even yearly budget? Not to mention, may not even have a budget? As a family unit, budgeting and keeping on the budget need to be a team effort.
Fun fact: on average, Canadians owe $1.77 for every $1.00 of disposable income. That means they owe almost double what they actually have. Canadians owe a total of $802.1 billion in consumer debt (Source: Statistics Canada).
The United States, as of October 2020, had a total consumer debt of $4.2 trillion (Source: The Balance). These are crazy numbers. If you’re not sure what consumer debt is, it is any money owing on credit cards, personal line of credits, car loans, etc. Mortgages are not under consumer debt if you’re curious.
Have I enticed you to take an interest in your finances? YEAH?
Good! Here we go.
1. Discuss your financial goals
The first thing you should do when creating a successful family budget is to discuss and agree on your family’s financial goals.
Do you want to pay off your mortgage sooner? Do you want to vacation each year? Saving for a downpayment? Do you want to buy that car outright? Pay off that credit card bill that has been accumulating?
What are your financial goals? Think about it. Really give it some generous thought. They can be short-term or long-term goals or both!
Tip 1: Be specific and realistic when you’re making your financial goals. This makes them easy to measure and attain.
My husband and I decided that we wanted to contribute more to our savings and retirement and do maximum contributions to our daughter’s RESP (Registered Education Savings Plan) so that we can get the full government matching.
Once your financial goals are set, you can start to plan your budget around your goals and see what is doable. This is my first tip for creating a successful family budget.
2. Create your budget
The second step to creating a successful family budget is actually creating one!
This is the longest part but stick with me. I wouldn’t waste your time and I certainly wouldn’t waste mine unless I felt it would be beneficial to go through it step by step. Stick around to the end of the post because I am sharing with you our personal budgeting template, so you can start your journey to financial success too.
If you’ve gotten my budgeting template, open it up and take a look. It is on google slides so it is accessible for everyone to use. This template has all the formulas so you just need to add in the numbers. Careful not to delete any of the equations and formulas.
Understanding the Template
Under “Summary” you will see “Income”, “Expenses”, and “Available Cash”. Do not add anything to these columns. There are formulas and it will auto-populate as you fill in the “Income type”.
Income is your family’s total net (after-tax) pay that is brought in each month. I don’t know about you but our family’s net income doesn’t vary. We get paid every 2 weeks so some months we have an extra paycheque but when we budget we don’t include it. We always “round down”, or according to the accounting world, it’s called being conservative. The “expenses” column is the total of all the money that goes out each month. This will auto-populate with the correct total once you start adding your expenses.
Available Cash is the difference between income and expenses. You want to aim to always have a surplus and avoid ever being in a deficit. This column will also auto-populate.
If you have a surplus under available cash, this means that after all your major and necessary expenses are accounted for you have money to spare! This is money that you can choose to spend how you want! My husband and I will be adding any surpluses to our retirement and daughter’s RESPs as per our financial goals.
Next is your “Income Type”. We put our names here. Tyler, Grace, and for us other is our rental income. For you, it may be a child benefit that is used for your family expenses, a 2nd job, a part-time job, a side hustle, etc. It is also okay if it is blank.
If you have a fluctuating monthly income, we recommend going back over your online bank account and see which month had the lowest pay (to get an overview). Always round down your income when creating your budget. Rounding up is how we spend money we might not have and get ourselves into consumer debt.
I have filled it out to give you an idea. However you can edit and change it so that it fits your lifestyle.
Let me give you an idea of why I have placed all these things under expenses. These are all common expenses that many families have and we need to consider them when creating our budget.
Tip 2: If your financial institution allows you to make multiple free savings/checking accounts, create one for each expense! Set the money aside each pay day so you have full control and know where your money is going!
My husband and I are homeowners. So we have a mortgage payment that comes out each month. The nice thing about mortgage or rent payments is that it is fairly consistent. A predictable expense. So you can be pretty exact, down to the cent if you want when filling out your budget.
If you live in a strata property, you need to consider the strata fees. Again, another consistent expense. If you own a freehold property (strata-free home) you still want to put aside money for monthly maintenance or even emergency repairs. This can also be a consistent amount for now as you are saving for that unexpected but likely home-related expense.
Tip 3: If you’re not a homeowner but plan to be in the future, consider these expenses and do up a mock budget. See how you need to adjust your budget to make your homeownership dreams a reality. Then total the expenses and set them aside into an account to save towards your downpayment! You will be saving and prepared for those expenses when you finally purchase your home!
If you own your home, you need to pay property taxes. It is a large expense that comes out once a year that you need to consider. Our family sets aside money for it each month based on previous property tax assessments. You can find previous property tax assessments online on your city’s website. We don’t ever want to dip into our emergency fund or home maintenance fund so it’s good to have some money saved.
Home and life insurance if you have it (which is recommended, if you can budget it) can also be a consistent amount each month. Our home and life insurance come out 2x a year in a lump sum. It gets charged to our credit card (yay for points and cashback). We got the total from the insurance broker and we broke it down into monthly amounts and now we set aside the amount monthly. When the payment is charged then we pay it off using this money.
Tip 4: If you have bills that can be paid using a credit card, set up auto-payments. Never pay your bills late again and earn cash back on bills that need to be paid. Don’t forget to pay your credit card bill!
Phone and internet bills are usually pretty consistent unless you go over your usage. So again, set aside the amount per month.
Utilities are a non-negotiable but variable expense. It can change with warmer and colder months of the year. What my husband likes to do is set aside $100.00 every month. Living in Vancouver, we are billed every 2 months for our hot water and energy usage. In the warmer weather months, our bill comes out to about $50.00 but in winter months we’ve had our bill come out to $600.00. Seriously, no joke. It gets cold. So by contributing a consistent and reasonable amount each month we can sidestep those colder month bills and don’t have to dip into money we’ve been saving for other things.
Tip 5: If you have variable bills, like utilities, set aside a consistent and reasonable amount each month and let the surplus be a buffer for months where the bill is higher!
Not everyone will have child care payments but we do. So we add that to our budget. It is the same each month no matter what, so it is a predictable expense. Our household combines the amount for car payments, insurance, and maintenance together. What my husband likes to do is add the car payment and insurance payments together, these are set amounts. Then he rounds it up.
Example: In one month, car payment = $350.00, insurance = $200.00, total is $550.00. My husband will round up to say, $600.00. The extra $50.00 per month is for car maintenance. It can really be any amount you want. You can round up to $575.00 and save an extra $25 per month towards unexpected care expenses. Maybe it’s for routine oil changes or those winter tires you need to replace.
Gas for your car is definitely a variable expense. A simple way to calculate how much to budget is by going over your gas charges over the last few months and averaging it then round up. So if it came to an average of $245.00 over 5 months, round up to $260.00 or $300.00 per month, if you can. Money left over at the end of the year can be put towards your financial goals, invested, or spent.
An emergency fund is a variable expense but I also feel it should be a non-negotiable. You never think it will happen to you but just when you think it won’t, it can. Did you know that your emergency fund should have enough to cover up to 6 months of income (according to Dave Ramsey)? So, if your monthly net income for your family is $4000.00 you should have $24,000.00 saved.
The money in your emergency fund should be readily available when you need it, this means no investing. At least, no long term investments. An emergency fund is specifically for when you’re unable to work due to being laid off, an injury, or a disability. It is there so you don’t have to overextend your credit and go into major debt. It is unforeseen circumstances such as these that are the cause of many insolvencies (bankruptcies). Ask yourself do you have an emergency fund? If not, do you have the means to start one? If you have one, do you have enough?
Another important one is contributing to your retirement/savings funds. Did you know that there is a huge percentage of people who are retiring in the next 10 years? This means a large portion of the population will dipping into the government pension plans/benefits. This wouldn’t be an issue but did you also know that there are fewer people in the current generation working than in the past? This means that there are fewer people contributing to these benefits when we retire. We can’t rely on government help to sustain us during our retirement. We need to make sure we have something to subsidize it. Start saving for retirement.
Tip 6: No matter, your financial situation, if you have a surplus of money after all the non-negotiables are paid, put money into your retirement. Compounding interest over time is your best friend. Start early and contribute what you can. Take advantage of your pensions or RRSP matching at work if they offer them.
Don’t worry, I haven’t forgotten groceries. For our family, the grocery budget is one of our largest expenses and the most flexible. What I mean by that is, this is where we are able to save the most money.
I have created a separate tab with proper formulas so that it takes from your budget. You can keep track of where your money goes. This is one area where you can save money if you are on a tight budget.
The grocery budget is not just our family food budget for the month but is also meant to include toilettes, my daughter’s diapers, laundry detergent, and other household things that we might need. We also include going out to eat in our grocery budget. Your grocery budget can include what you wish but we lumped it together to help us with our financial goal of saving and contributing more to our retirement and my daughter’s RESPs.
I like to be able to see how much I have spent each month from our grocery budget and see when there is a surplus. Now, this surplus is where it gets fun. You can play around with this surplus. Add that extra money into your travel fund, your spending budget, your savings. Maybe you want to add it towards the principal of your mortgage to pay it off faster. There is so much you can do with an extra $200.00 each month for 12 months. The surplus will vary. Some months you will need to stock up on non-food essentials like toilet paper, or shampoo but that won’t be every month.
3. Prioritize your Non-negotiables
There are expenses that are non-negotiable. They must be paid. You must pay your rent or mortgage, you must pay your insurance for the car if you’re driving it. There are certain expenses that you need to have money for.
Non-negotiable expenses will differ for every family but everyone has non-negotiable expenses. Prioritize these first in your budget then distribute money for other areas of your budget, such as savings or groceries. You will be able to see how much money you have to move around and play with for other things like a spending fund or a travel fund.
Tip 7 : Decreasing your non-negotiable expenses is the best long-term way to have more disposable income. You can do this by contributing more to your mortgage principal payments and shrinking your mortgage over time, or deceasing from 3 cars to 2, there are many ways to eliminate or minimize your non-negotiable expenses.
If your non-negotiables are too much, you might need to re-evaluate your lifestyle or see what non-negotiables you can change. Do you really need that penthouse rental when a 3rd-floor rental will do? Do you really need to live in the downtown core/heart of the city when it could save you thousands per year if you moved to a location that required a 15 minutes longer commute?
Take these things into consideration when creating your budget. Set yourself up for success.
4. Consider every expense
It is the little things we spend money on that we don’t realize causes hemorrhaging in our wallets and bank accounts. A small coffee once or twice a week. Pay parking for work and appointments that get overlooked. Small expenses like these add up.
For example, a $5.00 Starbucks coffee, 3x per week is $15.00 a week. Over 4 weeks (in an average month) it becomes $60.00. Before you know in 12 months it is $720.00 that you could have added to your vacation fund. (That extra week in New York would have been so nice…)
This does not mean you can’t enjoy a coffee once in a while or often if you want but create room for it in your budget so it is accounted for. Know where your money is going! Dave Ramsey says there two ways to have more money. You have to make more money or you have to spend less money. Many times, your income is fixed. You are unable to make more money unless you take on another job or get a raise. Things that you may not always be able to control.
Something you can control is how you spend your money. Taking ownership of where your money goes and where you decide to put it. That is in your full control. Use this power wisely.
Also, consider your variable expenses. Expenses or bills that are never the same month to month. Be realistic and always round up in your variable expenses. Remember my helpful tip number 5? I would recommend these for all variable expenses. Creating a buffer for those variable expenses prevents you from dipping into other areas of your budget.
Let’s be honest, if your heating bill came up to $300.00 one month and you only budgeted $100.00 per month because that is the norm then that money has to come from somewhere. Likely it will be your vacation fund or worse your emergency fund.
Budget a little more, instead of $100.00 per month increase it to $125.00. Over the course of the year when your heating bill is $75.00 or $121.00, you are creating for yourself and buffer to take that big hit when it inevitably comes.
5. Create a spending budget
If you live a lifestyle where you like to indulge in the finer things then you might want to create a spending budget. A budget for luxuries. There is nothing wrong with that as long as your non-negotiables are all accounted for. The point of a budget is to take control of your finances and reach your money goals.
Tip 8: Spending and other similar budgets are where you can control and save the most money. Consider this when using these budgets. Always make decisions with your financial goals in mind.
My husband and I have a spending account. We contribute a portion of extra money from bonuses or gifts into our accounts and it is ours to spend on whatever. For us, our “spending budget” doesn’t come out of our income so we aren’t sacrificing non-negotiables, or our grocery budget so there is no guilt. Also, because it is not coming out of our income, we usually spend it on big-ticket items, like a new computer, or a TV.
Things like a coffee here and there or date night comes out of our grocery budget. However to each their own. Do what works for you and your family. Do what will keep you on budget and steady towards your financial goals.
Some families take money from their income to be added to a spending budget on a monthly basis. Therefore things like eating out or coffees, or dates, and other luxuries come from their spending budget, not their grocery.
6. Review your budget often
It is so important to review your budget often. Some families require monthly check-ins to review their budget and make sure they are on track.
My husband and I don’t really have the time to do monthly check-ins so we do quarterly check-ins. Every 3 months we have set the time in advance to review our budget and goals to see if we are on track. Are we seeing deficiencies? If so, where? Are we seeing a lot of negatives numbers? Are we seeing surpluses and where?
Tip 9: Budgeting success is a long game. It takes perseverance. Long term financial goals may require many smaller goals. Keep at it!
There is no point in creating a budget if you’re not going to check and review it to ensure that you are on course with the budget you have created for your family.
7. Adjusting your budget as you go
When you do your check-ins. It is important that you see where you can change your budget. When you do your family budget, it is not a “one and done”. It will need to be updated constantly. Not just in the expenses but also as you get an increase in salary, bonuses, or other benefits that you might want to add to your “other income”.
If this is your first time trying to stick to a budget, your numbers might not be accurate. You adjust and fine-tune your budget each year but also as you go. You will never fail on your budget if you are keeping track and updating consistently. Life changes all the time and there are things you can’t control so your budget needs to be flexible and changed too, if needed.
These are my 7 best tips for creating a successful family budget. Like I said, keeping to your budget is the hardest part. Remember that a budget isn’t meant to be restricting, annoying, and even disappointing but it is supposed to be eye-opening. It is there to show you where your money is going and how to take control of your finances. It will help you understand your money, your expenses, and help you reach your financial goals.
Want more on money talk? Check out 5 Great Ways to Save Money for your Child’s Future