How to Create a Family Budget

Sticking to a family budget is an excellent habit to develop. By doing so, you can reduce your spending, save more money, and avoid complications such as missed payments or exceeding credit card limits. Setting up a family budget requires you to track your current income and expenses while establishing financial discipline to manage your spending and build a stronger financial foundation.

Decide how to record family expenses, income, and budget. You can use paper and pen, but if possible, using spreadsheet software or simple accounting software will make calculations much easier.

• You can find a budgeting worksheet template from Kiplinger here.
• Accounting software like Quicken is nearly automated, designed specifically for projects like this. Additionally, such software includes budgeting tools, like savings calculators. However, it is not free, and you will need to pay a small fee to use it.
• Many spreadsheet programs offer pre-made family budget templates. You may need to adjust it to your needs, but it’s much easier than starting from scratch.
• You can also use electronic budgeting tools like Mint.com, which helps track spending.

Format the columns in the spreadsheet. Starting from left to right, label each column with categories such as "date of expense", "amount spent", "payment method", and "fixed/discretionary expense".

• Make sure to regularly record all your expenses and income, whether daily or weekly. Many software programs and mobile apps can help you track your expenses anywhere, anytime.
• The payment method column helps you know where to find the record of each expense. For example, if you pay your monthly electricity bill using a credit card to earn airline miles, make a note of the payment method in this column.

Classify your expenses. Each expense should be categorized so you can easily see how much you've spent on bills each month or year, on regular necessities, and on discretionary spending. This will be helpful when budgeting or reviewing a specific expense. Common categories include:

• Rent/mortgage payments (including insurance costs)
• Utility costs like electricity, water, gas
• Housekeeping expenses such as gardening services, housekeeping help
• Transportation costs (vehicle, fuel, public transit fees, car insurance)
• Food and dining out expenses
• Accounting software also makes it easy to categorize expenses (such as food, fuel, utilities, vehicle, insurance, etc.), and calculate totals in various ways to see where and how much you spent, and what method of payment you used (credit card, cash, etc.). The software also lets you divide expenses into different periods and priorities.
• If using a paper spreadsheet, you may need to dedicate a separate page for each category, depending on how many expenses you have in each category each month. With software, you can easily add rows for additional expenses.

Record large and recurring expenses in the spreadsheet. Examples include vehicle payments, rent or mortgage, utilities (like electricity, water, etc.), and insurance (health, etc.). Any loans such as student loans or credit card payments should also be recorded here. Each expense should be entered in its own row, with an estimated amount recorded until you receive the actual bill.

• Some expenses like rent or mortgage are usually fixed each month, while others may vary (such as utility bills). Enter estimated amounts for fluctuating expenses (based on last year’s bills), but once the actual bill arrives, update the spreadsheet with the actual amount.
• Try to round your estimated amounts for each category.
• Some utility companies allow you to pay an average monthly amount for the whole year instead of paying fluctuating monthly bills. You may want to consider this option if stability is a priority for you.

Calculate essential expenses. Think about the expenses you have to pay regularly and the amount you typically spend. How much do you spend weekly on gas? What’s your average food expense? Focus on the necessary expenses, not the amount you want to spend. After recording these expenses in their respective rows, enter the estimated amount. Once you know the actual cost, update it immediately.

• It’s a good idea to spend as usual, but always keep receipts or take notes every time you make a payment. At the end of the day, total up your expenses either on paper, on your computer, or on your phone. Make sure to list the specific items you purchased rather than general terms like "food" or "transportation".
• Apps like Mint.com can help you categorize your spending into groups like “food,” “utilities,” and “miscellaneous shopping,” allowing you to track your monthly spending in each category.

Include discretionary expenses in your spreadsheet. These are the costly items that you can cut back on or that don't bring you enough joy to justify the price. This category may include anything from extravagant splurges to daily expenses like lunch boxes and coffee.

• Remember that each expense should be recorded in a separate row. This will make your spreadsheet lengthy by the end of the month, but it will help you manage each expense individually.

Add a row for your savings. Not everyone can save regularly, but it should be a goal to work towards. Everyone should try to save, if possible.

• The ideal target is to save 10% of your salary. This amount is enough for your savings to grow quickly without affecting other areas of your life. We are all familiar with the situation where, by the end of the month, we have no money left. That’s why we should save first, not wait until the end of the month.
• Adjust your savings amount if necessary, or better yet, adjust your spending if you can! Your savings can later be used for investment or other purposes like buying a house, paying for college, going on vacation, or anything else.
• Some banks offer free savings programs that you can enroll in, like the “Keep the Change” program from Bank of America. In this program, your purchases made with your debit card are rounded up, and the difference is transferred to your savings account. You also earn a small percentage on this savings. This is an easy and hassle-free way to save a little each month.

Add up all your expenses each month. Add each category, then sum up the totals. This will allow you to see what percentage of your income is spent on each category, beyond just the total expenses.

Record all sources of income and sum them up. Include everything: tips, income from side jobs (the money you bring home that you don't report for taxes), found money, and your salary (or monthly balance if you're paid weekly).

• This is your net salary, not your total income during the period.
• Record your income from all sources as thoroughly as you record your expenses. Sum them up weekly or monthly, depending on what works best.

Place your total monthly income next to your total monthly expenses. If your expenses exceed your income, you will need to consider cutting back on spending.

• Once you have detailed information about where your money is going and your priorities, you’ll be able to identify expenses that can be reduced.
• If your monthly income is higher than your expenses, you can save some money. This savings could be used for other large purchases, like buying something on installment, paying for college tuition, or saving for other major goals. Alternatively, you could set aside a little for smaller indulgences like a weekend trip or a spa visit.

Target discretionary expenses that can be reduced. Set specific limits for non-essential spending. Establish a budget cap that you must adhere to.

• You can still budget for indulgent spending – life without fun is impossible! However, creating a budget and sticking to it will help you keep track of these expenses. For example, if you frequently go to the movies, set a limit of 800,000 VND per month for movie tickets. Once you’ve spent that amount, no more movies until next month.
• Even essential expenses can be scrutinized. Regular expenses should only account for a small portion of your income. For instance, food should make up only 5-15% of your budget. If you spend more than that, you should consider cutting back.
• Of course, the percentage of your spending may vary; for example, grocery costs can fluctuate based on food prices, the number of people in your family, and specific dietary needs. The key is ensuring you aren't spending on things you don't need. For instance, do you often splurge on expensive pre-packaged meals when you could cook at home?

Estimate and account for unexpected expenses in your budget. By budgeting for unexpected costs, such as medical expenses, car repairs, or home maintenance, these surprises won't significantly affect your overall budget or financial plans.

• Estimate the amount you'll need for unexpected costs each year and divide it by 12 to get a monthly reserve.
• This contingency fund will protect you from financial strain and credit card debt, even if you exceed your weekly spending limits.
• If by the end of the year you haven’t needed to use the contingency fund, that’s great! You’ll have extra funds to add to your savings account or use for investment plans when you retire.

Calculate the costs for short-term, medium-term, and long-term goals. These are not unexpected expenses, but rather part of your financial plan. Do you need to replace household items this year? Want to buy a new pair of boots? Or perhaps you're looking to buy a car? Plan ahead for these purchases so you won’t need to dip into your long-term savings.

• Another key point: Try to only purchase when you’ve saved enough for that item. Ask yourself, do you really need it right now?
• When you’ve used your contingency fund or allocated budget for a planned expense, record the actual amount spent and remove the estimated amount to avoid overspending.

Create a new budget plan. Combine your contingency funds and goals with actual spending and income figures. By doing so, you not only create a more effective budget but also set aside savings, making your life feel less hectic and more relaxed. You'll also be motivated to cut down on unnecessary spending to achieve your goals and buy the things you desire without going into debt.

• Try to focus on fixed expenses. Cut back on spontaneous purchases whenever possible.

• Don't put all your money in one place or bank account. Use your checking account for daily expenses, a savings account for short-term goals, an investment account for medium-term goals, and a retirement account (such as a 401k or IRA in the U.S.) for long-term, tax-deferred savings. Following this approach ensures that your money is available when you need it, both now and in the future.