How to Create and Maintain a Family Budget

If you’re not good at maintaining a household budget, you’re not alone. Many families operate without a spending plan, and even those who think they are budgeting may not actually be doing so.

Nearly 60% of people say they don’t track spending, and 2 in 5 have never had a budget, according to a 2019 report from the Certified Financial Planner Board of Standards. For their study, the organization surveyed 300 adults between the ages of 35 to 65 who had investable assets of at least $100,000 in 2018. Among those who reported having a budget, 43% describe their budget as a tracking tool rather than a way to plan where their money will go in advance.

However, the budgeting process involves more than simply recording receipts and taking stock of spending habits. The following are nine crucial steps for making a family budget:

Bring both partners together.

Create goals.

Track income and expenses.

Evaluate your current situation.

Trim costs.

Build savings.

Get out of debt.

Lower your taxes.

Check in frequently.

“The major goal of budgeting is that you should be living within or just below your financial capacity,” says David Luebke, founder of Simplified Budget, an upcoming online software platform. Here’s a closer look at how the budget process should work.

[See: 10 Steps to Achieve Financial Freedom.]

Bring Both Partners Together

A budget will never work if the adults in the family aren’t on the same page. Before you start crunching the numbers, have a frank discussion with all decision-makers in the house to hash out shared and individual financial goals.

“With partners, really find what’s important and get rid of the guilt and the shame,” says Charlene Quaresma, a financial advisor with Northwestern Mutual in Portland, Oregon.

If having nice shoes is important to one person, the other partner doesn’t get to criticize or demean that choice. Similarly, if someone prefers saving to spending, their preference should be respected. However, both partners need to understand and accept that compromise may be necessary to create a budget that works for the entire household.

Create Goals

Whether your budget succeeds or fails could depend largely on whether it aligns with your personal and family priorities. “It really starts with discussing values and goals,” says Eric Rosenberger, a certified financial planner and partner with Synthesis Wealth Planning in Morristown, New Jersey.

Decide together what is important to your household. That could be one parent staying home to raise children, an early retirement or extensive travel. “Once you prioritize a goal, you need to decide if it’s even achievable,” Rosenberger says. If it’s realistic, create your budget so it will funnel money toward that goal.

Track Income and Expenses

Before you can write a budget, you need to understand your current financial situation. Begin by tracking or reviewing 60 days’ worth of transactions through your bank and credit card accounts. This will be crucial to identifying what money gets lost in your household’s black hole.

“The black hole is money you could either save or spend (intentionally), but it often just disappears,” Quaresma says. Knowing where financial leaks are will help you change spending habits.

This doesn’t have to be a long or arduous process either. Many banks and credit cards will aggregate account information and produce income and expense reports. You can also turn to beneficial and free budgeting tools, such as apps from Mint and Personal Capital.

Evaluate Your Current Situation

As you track expenses, place them into categories that make sense, such as housing, entertainment, dining out and debt payments. However, don’t make the mistake of getting bogged down in this process. “People get far too detailed,” Luebke says. “It consumes so much of their time that they just stop.”

Once you know how much you spend in each category, determine which expenses are fixed and which change throughout the year. It’s also helpful to identify which categories are discretionary, meaning they cover expenses that are nice but nonessential for your family.

[See: How to Save Money When Grocery Shopping on a Budget.]

Trim Costs

If spending in one category is too high or if there is no money left over for savings or debt repayment, it’s time to trim expenses. For instance, dining out tends to be a drain on many budgets. Menu planning, shopping sales at the supermarket and buying items in bulk can all reduce the cost of groceries and make it more economical to eat at home. Cable, subscription services and impulse purchases made online are also low-hanging fruit when it comes to reducing household spending.

Large families may have to make some adjustments for food and clothing, but adding one more child isn’t necessarily going to increase fixed expenses such as a mortgage payment or utility bills. “The size of the family wouldn’t dramatically change someone’s budget,” Luebke says. “What really impacts budgeting is the number of (income) contributors.” Budgeting in one-income households may be more challenging than it is in two-income households.

Running out of energy is a bigger risk than running out of money for parents of large families, Quaresma says. “You get exhausted and you tend to throw money at a problem,” she explains. Tired parents may be more likely to run through the drive-thru at dinnertime, hire a cleaner or otherwise pay for services that they would complete on their own. Moms and dads may need to decide if their time is worth the money spent on these items.

Build Savings

Savings should be a top priority for any money left over after monthly expenses are paid. While it may be tempting to focus on paying down debt first, an emergency fund is equally important. Keeping enough money in savings to cover three to six months of expenses is a common rule of thumb.

After an emergency fund, retirement is the next savings priority. Workplace 401(k) accounts and IRAs offer tax incentives, making them a good spot to deposit money for retirement. Many employers will match employee 401(k) contributions up to a certain percentage, and workers should contribute at least enough to their retirement plan to receive the entire match. “We don’t want our clients to miss out on any free money,” Rosenberger says.

Get Out of Debt

Part of the budgeting process is balancing the need to pay off debt with the need to save for the future. While having an emergency fund is important, it may be best to shift your focus to debt repayment after that. If a debt charges higher interest than savings would yield, it may be better to pay down debt than boost savings beyond what is necessary.

Complicating the matter is the fact that some debt comes with tax advantages. For instance, up to $2,500 worth of student loan interest can be deducted from federal income taxes, and mortgage interest can be included on itemized deductions.

However, the Tax Cuts and Jobs Act of 2017 means people need to reevaluate some tax deductions. The law nearly doubled the standard deduction, meaning far fewer people are itemizing and thus benefiting from a mortgage interest deduction. Given that, there may be little benefit to keeping a mortgage nowadays.

Lower Your Taxes

Don’t overlook the importance of taxes when budgeting. Reducing the amount you pay to the government can free up money for other priorities. What’s more, putting money aside into tax-advantaged accounts can help ensure you’ll have funds available for future expenses such as health care, college and retirement.

If you have a qualified high-deductible health insurance plan for your family, you can deduct up to $7,100 deposited into a health savings account in 2020. That money is also tax-exempt when used for medical expenses. For college savings, consider a 529 plan which doesn’t provide an immediate federal tax deduction but may have state tax benefits. These accounts grow tax-free and can be used tax-free for qualified education expenses.

As for retirement, a traditional 401(k) or IRA offers an immediate tax deduction on contributions. Withdrawals in retirement are subject to tax, though. If you’d like to avoid paying taxes later in life, use Roth accounts instead. Contributions to Roth 401(k) accounts and IRAs aren’t deductible, but the money grows tax-free and can be withdrawn tax-free after age 59 1/2.

[Read: 9 Red Flags You’re Making a Bad Financial Decision.]

Check in Frequently

Once completed, a budget should serve as a road map for how a family plans to spend its money going forward. To be effective, it should be consulted frequently to ensure actual household spending is in line with what is written. As family circumstances or priorities change, the budget can be adjusted.

“Once you have a budget in place, some people look at it as a game,” says Michael Gerstman, CEO of Gerstman Financial Group in Dallas. They may challenge themselves to save a certain amount of money or reach a certain balance in the bank. “Reaching your goals is fun,” Gerstman adds.

Meeting monthly to review the previous month’s spending and look forward to the coming month’s expenses can help partners stay on top of family finances. Combining a budget review with a date night can be a good way to make this process feel less like a chore. Regardless of how you structure check-ins, remember all partners are on the same team and should work together to reach financial goals.

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How to Create and Maintain a Family Budget originally appeared on

Update 07/27/20: This story was published at an earlier date and has been updated with new information.

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