Family budgets work best when they are comprehensive and realistic. Make sure you capture expenses big and small, and see that they do not exceed income. All members of the family must be a part of the budgeting process, since everyone will have to work together to meet budget goals.
Income and Expenses
The first step is to document current income and expenses onto a basic computer spreadsheet, or with a simple pen and paper. You can't predict the price of gas tomorrow, but you can factor in a reasonable estimate. Recurring bills like your mortgage, phone and cable, car payments and insurance don't vary much from one month to the next, but the trick is to be thorough about listing all of your expenses. If you forget the small stuff, your budget won't be accurate. You may be tempted to exclude the breakfast muffin, and the little toy at the neighborhood carnival, since they only cost a couple of dollars. But even a one-dollar treat -- nearly every day -- adds up to $350 dollars a year, or more than $3,500 at the end of the decade.
For a family budget to work, everyone needs to be included, and to understand it. Both spouses need to work on a budget together. It's also never too early for kids to learn, and you can work out a separate budget for each child's allowance. You don't have to list the family income -- so that they go running to school to tell their friends -- but do show children the actual expenses. You can' t expect them to learn to turn lights off when they exit a room, or not to leave the water running while they brush their teeth, unless they see that these acts have financial consequences.
Understanding the Budget
Numbers are still a foggy concept to children, and even to some adults. Newlyweds may find that their new life partner was never taught how to budget, and still doesn't know the value of a dollar, so now is the time to mend those ways. If one spouse does most of the banking, make sure that the other at least knows what's going on. Don't be afraid to show kids how to make a bank deposit, or write out a check.
Learning About Trade-offs
One key to a family budget that works, is for everyone to understand how one expense relates to another. “Ten dollars” may not mean a lot to kids, but if you tell them that four soft drinks at a restaurant costs $10, or that $10 is the cost of a movie ticket, it may start to make sense. Substitute free water for soft drinks, and explain that each time you make this substitution, the family earns one movie ticket. At the end of four weeks, the family can then afford to go to its monthly movie. Many people, especially children, need concrete examples to help them conceptualize what the numbers represent.
Set a Goal
The first and foremost goal is to balance income and expenses. Once the budget is balanced, you can plan some long-term goals. It is fun to plan for a family vacation or some new gizmo, but children should also learn that saving is its own reward. Make it a goal to transfer money into a savings account for a far-off event, such as a college savings plan, or a fund earmarked for a new car.
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