The First Step is the Hardest! You’ve Decided to Create a Budget…But What’s the First Step?
So, you’re convinced. You want to meet long term financial goals, have an improved family and marriage, and know where your money goes each month…But how to even begin creating a family budget?
Well, congratulations! You get one more month to procrastinate on your financial plan….ok, not really. But, the first step to creating a family budget is actually spending one more month without it; you need to see where, exactly, you are coming from monetarily before you can begin on your road to where you are going. Following are instructions on how to spend that month preparing for your financial future.
Your first step is to gather the income of every contributing member of the family, everyone who helps with expenses, that is. No, don’t pool in your teen’s lawn mowing money if it isn’t used for family household expenses. However, if they pay a portion of the electric or heat bill, then it will be a required notation in your new budget.
Using paycheck stubs, which may be found online, attached to your check, or through your payroll office, note the gross income of every family member, and make a note of it. Then, figure out where all that gross income is going that reduces your paycheck to the net amount. Using Excel, or even a handwritten graph or Microsoft Word chart, create a line for each “expense” that is taken out of your paycheck: taxes, employee parking, union dues, health insurance payments, retirement funding, whatever is present. You may need to contact your payroll department for an interpretation of the codes that are often found in checks.
The next step is a little easier. Gather all your household bills from the previous month. Create a line item for each of these recurring bills: mortgage, electric, gas, phones, etc. How you handle your monthly credit card bills will depend on your credit situation. If you are only paying minimum amounts (just until you get on your feet!), then note that amount on a line. If you pay off your credit cards each month, or pay more of than the minimum due, you will need to estimate that line item. That’s ok, but be sure to set the expense estimate a little high.
The last step to preparing to create your monthly budget is to track your cash spending for one month. As you go about your day, you must commit to obtaining a receipt from every latte, every store purchase, every gas purchase and so on. These receipts will be key to figuring out where all your income ends up at the end of the month.
Every cash receipt should then be categorized into a line item. For example “entertainment” could include the movie tickets you purchased, and the twenty bucks you spent on miniature golf for the kids. A “restaurants” item could include lattes and eating out. A “grocery” item should include all food, and perhaps your health and beauty aids. Or perhaps you’d like to begin another line for beauty aids and include family haircuts in there, while health items could be rolled into the line item you created for your paycheck-deducted health insurance. The names and categories of your tracking have little consequence, unless there is a specific area you are hoping to reduce.
You are now ready to take a solid look at your family budget. After 30 days of following these steps, you should have a solid picture of what money comes into your household, and what expenses take that money back out. It is now time to go through your line items with a fine toothed comb and take a hard look at your expenses: did you know that your gift-giving cost you $100 a month last month? Will it always be like that?
And why is your cell phone bill so high? These are the hard questions you must ask yourself before you are ready to set a budget. The steps above give you a way to get there!
