7 Tips When Running a Family Budget

I talk quite a lot on this site about the importance of budgeting and it struck me that running a successful budget – be it a family budget or even a work budget – is not just about creating the budget in the first place and getting everything down on paper.

That’s only half the story.

The second half of the story is just as important and it is about how you use that information going forward – in other words how you use your budget to manage your future finances

Given that the site is primarily about family finances I’ll concentrate on running a family budget, but the principles outline could apply to any budget – at home, at work, your own business

Running a Family Budget

So I thought I would give some thought to some of the personal skills which you need to hone  in order to budget successfully and I came up with the following “7 habits of successful budgetters” (with apologies to Stephen Covey)

• honesty and realism
• decide what works for you
• setting measurable financial goals
• get personal (and family) commitment
• set aside time to focus and manage
• be self-disciplined
• reward yourself occasionally

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1. Reality Checking – Making Your Budget Realistic and Honest

Strictly speaking this is in the budget definition phase but it is a really important part of budget setting. You need to be honest with yourself about your spending and your families spending, and initially at least get everything down into your budget

Here’s an article which delves a bit deeper into setting a budget

Your budget needs to be tailored to fit your particular needs and in doing so you must consider everything that is spent and everything that is likely to be spent

You will of course need to consider your total income on the credit side, and then on the debit side your debt, housing and mortgage payments, utilities and insurance costs.

You will also need to consider day to day costs such as food, clothing and transport

You will need to take into account each family member and their individual needs and use this information to feed into your family (or personal) financial goals

Do you need to budget semi-temporary expenses or long-term goals? Do you have plenty of income or are you barely scrimping by?

Look at your own situation and seriously consider what money needs to go where to meet the needs and wishes of yourself and your family. Don’t forget unexpected and once-a-year expenses in your planning such as holidays and Christmas

That’s the hard facts part of the budget out of the way, now we move on to more of the personal skills you need to run a successful budget.

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2. Decide What Works for You

You need to be mindful of how you are going to control your budget once you have defined it..

• Will a piece of paper work for you? Or a spreadsheet? Or do you need some sort of fancy software? (hint: spreadsheets should meet the needs of most family budgets)
• Work out how you are going to keep track of spend.  Do you give each family member an “allowance” which they can then spend as they like? This is actually a very good idea if you have teenagers who can be a constant money drain.  Set them a fixed amount every month to spend on anything they need and after that the responsibility is on them to earn
• Is it best to run your budget from one bank account or more than one? – for instance you may want one account for all your fixed bills and another for your groceries and personal stuff
• How will you get the commitment of your family members to the budget?

It’s useful to draw up a set of simple rules and guidelines which you expect each family member to follow, but it’s really about deciding what works for you and your family

That’s the hard facts part of the budget out of the way, now we move on to more of the personal skills you need to run a successful budget.

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3. Set Financial Goals

To create a successful budget you need goals.

Having goals will help you decide where you want your money to go when you spend it

Plan your goals at least monthly and yearly with some long-term goals thrown in. If it works for you, take your monthly goals and break them down into weekly and daily goals as well.

For instance you may have a long term goal of going on a cruise in 10 years time, so breaking that down might be that you will save x amount of money each month to go towards the cruise

Try and make your goals measurable – for instance rather than setting the goal of “I want a new coat next year” make your goal “in December I will have saved $200 to buy a new coat”

Here is an article on successful goal setting

That’s the hard facts part of the budget out of the way, now we move on to more of the personal skills you need to run a successful budget.

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4. Commit to the Budget

This one is fairly short and sweet but vitally important

You could spend a month breaking down your budget to the tiniest detail and setting great goals, but if you aren’t absolutely 110%  committed to meeting those goals and maintaining your budget, then you will be wasting your time.

Commitment is as important to keeping a budget as the earning of the income.

Make yourself a personal commitment of ownership

“I own this budget and will commit to maintaining it for the rest of my life”  (or something like that)

One way to make personal commitment is to make yourself accountable

Imagine that budgeting was part of your responsibilities at work (and I bet to many it is) and that you have a boss breathing down your neck if you don’t stick to your budget each month

Because you are accountable to your boss (and your paycheck is dependent on it) you are going to make damn sure that you do everything you can to meet your objective

But we don’t do this at home – probably because we are only accountable to ourselves

But in actual fact your budget at home is more important to your personally than your budget at work

So get an accountability partner – one who you will have to explain your overspending to at the end of the month, and TREAT YOUR BUDGET AS IF IT WERE YOUR BUDGET AT WORK

This could be

• your partner
• a (trusted) friend
• an accountant
• your parents (?)
• yourself ….. the best way of doing this is to set yourself a reward if you hit your budgets (and don’t if you don’t)

That’s the hard facts part of the budget out of the way, now we move on to more of the personal skills you need to run a successful budget.

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5. Keep Focus

Keeping focus is not just about sticking to your budget but also about making sensible spending decisions

Once you have your budget and goals in place and you have committed yourself to achieving them, you will start thinking of them every time an expense comes up or temptation looms.

The best way to keep focus is to think about

• How you are going to explain that expense/shortfall to your accountability partner?
• How are you going to justify it to yourself?
• What impact will the purchase have on my overall budget

For instance, exceeding the budget on a bigger, widescreen, 3D, HD, smart TV may seem tempting if you have budgeted for something more modest, but always consider the knock-on effect of the bright, shiny object and what it will mean elsewhere in your budget

For instance it may mean you don’t eat that week, or have to take a more modest vacation, or you can’t pay that bill

Thinking holistically – about all aspects of your spending – will help you maintain focus.

Another good technique is to have a “cooling off period” for any major (or even minor) purchase. Basically, you go away and think about it for 24 hours – examine what it means to your budget , ask yourself the question “do I want it or need it?” and then come back to the decision.

Most times the answer will be no

Maintaining focus on your goals and your budget will keep you on the straight path towards a successful budget and achievement of your financial goals.

That’s the hard facts part of the budget out of the way, now we move on to more of the personal skills you need to run a successful budget.

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6. Self-Discipline

Self-discipline really ties up all the aspects we have talked about – goal setting, commitment, focus – and it is all about being disciplined enough to do what is required week on week, month on month

Self-discipline is :

• what keeps you from buying a snack in the checkout line when you are hungry but your grocery budget is at capacity.
• what keeps your housing budget at the amount you know you can afford
• drives you to set some time aside to do your budgets month on month so you can do them effectively

My suggestion with “self discipline” is to try and get yourself as organised as you can

• Get a filing cabinet or filing system for your paperwork
• Set aside a time each week or fortnight or month when you will work on your budget
• Deal with important stuff as it comes up – don’t ignore it

That’s the hard facts part of the budget out of the way, now we move on to more of the personal skills you need to run a successful budget.

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7. Reward Yourself

Running a successful budget can be a hard slog, especially if money is tight – so it is always a good idea to reward yourself if you are successful and have stuck to your budget that month

So it is always a good idea to budget for a little reward – an evening out, a cinema trip, a nice meal – if you hit your budget

REMEMBER TO BUDGET FOR THIS EXPENSE THOUGH AND ONLY DO IT IF YOU ARE SUCCESSFUL

It’s like a little pat on the back to yourself for a job well done!

To Summarize 

Working together, the 7 factors of reality, goals, commitment, focus, and self-discipline will be just about all you need to create and stick with a budget.

No matter if your income is ten thousand dollars a year or ten million, a fully functioning family budget will help you have more, earn more, and live better, you just need to put one in place and have the commitment, focus and self discipline to stick to it