Family Budgeting Made Easy

By Vicki Coleman

Family budgeting is crucial for both surviving in the short term and meeting financial goals in the long term.

Whether you’re one of the millions of people[1] who is struggling to pay their bills or you’re in a position to save for the future, drawing up a family budget will help you manage your finances and put you in charge of your money.

We’re living in tough economic times. You might not have thought about meticulously managing your money until now. The good news is you don’t have to be a personal finance whizz to create a monthly household budget. Ultimately, it’s about working out how much you’ve got coming in against what’s going out.

By having a better view of where your money is going, you’re putting yourself in a position to be able to make decisions which improve your financial outlook. And who doesn’t want to have a few more quid in their pocket at the end of the month?

Family budgeting can be achieved in just a few simple steps…

1.      Work out your monthly household income

For some people, this will be as simple as combining the salaries of the adults in the household. But if you’re self-employed or claiming any benefits, it can vary from month to month.

If your household income isn’t fixed, work out your average income over the past six or 12 months. As well as your main job, other sources of income might include rent from a buy-to-let property or a private pension.

At the moment, there’s also the Energy Bills Support Scheme to factor in, which will be delivered in six monthly instalments.

2.      Work out your monthly expenses

Working out your household income is usually the easy bit – it’s much more difficult to get a grip on your spending.

Guesswork simply won’t cut it, so – as we stressed in our previous blog on family financial planning – you need to gather all your statements and receipts so that you can be as accurate as possible.

Note down all your monthly expenses including the bill payments, purchases and withdrawals on your bank statements and note which are fixed expenses and which are variable expenses.

Split them into essential and non-essential spending:

·       Essential = expenses related to living, such as medication, rent or mortgage, plus debt repayments and utility bills

·       Non-essential = make-up, gym memberships and Netflix

The difference between your income and what you spend on essentials is your disposable income.

If your total household net income is £4,000 per month, and your mortgage, bills, groceries and childcare costs come to £3,500 – you then have £500 left to play with each month.

3.      Cut your spending

You might even have a deficit i.e., your outgoings exceed your income. This would obviously indicate a need to cut your spending – but it’s a good idea to look at where you can save on your outgoings even if you have a sizable disposable income, as you’ll be able to put more away in savings.

It’s a cathartic exercise to reduce your outgoings. It doesn’t always have to mean a significant change to your lifestyle, with a combination of small gains often adding up to be greater than the sum of their parts.

In terms of essential spending, here are some ways to bring down your cost of living:

·       Switch energy providers – this may not have a huge benefit in the current climate, but once the energy crisis is over, there might be an opportunity to save money on your utility bills by shopping around

·       Consolidate your debts – if you have an overdraft or credit card debts, look to consolidate them on a 0% card

·       Get help with childcare costs – don’t miss out on the government’s tax-free childcare scheme means you can get up to £2,000 a year per child to help with the cost of childcare

·       Swap out the big brands – when you go food shopping, try some of the cheaper alternatives of your favourite products

4.      Make a spending plan

You also need to look at the ways you can cut your spending on non-essentials such as meals out and activities. There’s a balance to be struck here, as you don’t necessarily have to remove all of life’s luxuries.

From analysing your bank statements earlier in your budget review, you’ll probably already have a good idea of the extent of your non-essential spending.

Here are some of the ways you might be able to cut your non-essential spending:

·       Get rid of unused memberships and subscriptions – if you’re not getting enough value out of your gym membership, it might be time to cancel it; the same applies to Netflix and other subscriptions

·       Invite friends over for dinner – everybody loves going out for a bite to eat with friends, but it can be just as fun to host a dinner party

·       Cut down on the takeaways – reducing the number of takeaways you eat won’t just be healthy for your back account, it’ll help your waistline too

·       Try ‘piggybanking’ – piggybanking involves using multiple accounts to segment outgoings into different areas, helping you to manage your money more effectively

5.      Set your goals

Your financial goal might be as simple as tipping the scales so that your income exceeds your outgoings again. Or you might want to start building up a rainy-day fund, providing some peace of mind in case of any unexpected costs that come your way.

Having a clear goal in mind will help you stick to your budget, knowing that there will be some ‘pay-off’ in due course.

It’s good to try and put some shorter-term financial goals in place (perhaps a well-earned holiday) as well as some longer aims such as paying more into your pension pot.

[1] https://news.sky.com/story/cost-of-living-millions-of-people-already-behind-with-their-household-bills-new-research-suggests-12702095