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Now that you’re ready to make a budget, I’ll help you craft it with this family budget guide. We’ll start by looking at your take-home pay and dividing it into different spending categories. Then I’ll show you how to decide how much you can spend on each category.
We’ll use the popular 50/30/20 budgeting rule as our guide for our family budget. It’s not too complicated and you can adjust the rules based on your family and financial situation.
Rather than using past expenses to develop a future budget, this percentage-based budget might make more sense for you. A percentage-based budget splits up your after-tax income into three categories: needs, wants, and savings.
Determine Your After-Tax Income
You might think this is an easy step in the family budget guide – just take the final sum of all paychecks coming into your household and record that total. But while it’s a good start, the 50/30/20 budget rule goes a step farther by having you add back in any contributions you make toward health insurance, retirement, or other savings. Be sure you’re including money sent to flexible spending or health savings accounts too.
You’ll deduct them again and place them in the right budget category below. If you forget this step, you may take money out twice for the same expenses and then it could look like you don’t have enough money to pay for everything!
50% Goes To Your Family’s Needs
This category includes all of the essential things you need to live and the bills you absolutely must pay each month. Your rent or mortgage payment, groceries, utilities, transportation costs, insurance, and things like prescriptions.
You’ll also include minimum payments on consumer debt like credit cards, student loans, or lines of credit in this category. If you’re a working parent with young children, child care may be another need.
If your take-home pay is $5000 each month, 50% or $2500 is what the family budget guide includes for your needs. When you look at your list of needs – especially if child care is one of your expenses – you may realize 50% isn’t enough.
In addition to childcare costs, busy families may have more transportation and medical expenses, as well as higher meal and dining out costs, because of challenging schedules. Depending on your family situation and the cost of living in your area, you may want to adjust this percentage to 55% or 60% so it accurately reflects your spending. But that might mean also reducing the percentage in the next category – wants.
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30% For Your Family’s Wants
This category includes all of the things you want but are not absolutely necessary. Vacations, recreational activities like skiing or boating, entertainment, and many electronics fall into the “wants” category. Some clothing purchases, gifts, donations to charity, and saving for college, are considered wants as well.
The family budget guide would devote about $1500 from a $5000 monthly take-home pay for wants. But based on your family situation and finances, you may adjust this down to 20-25% ($1000 – $1250) if your family needs require more of your budget at this point in life.
Take the wants most important to you and prioritize them so you can decide how much to spend on each one. It’s not fun to cut back on lifestyle choices, but remember your discretionary income only goes so far. If your take-home pay increases or expenses in other areas go down, you can add in more of your wants without busting your budget!
20% To Savings and Debt Paydown
The savings and debt paydown category includes money you put into an emergency fund, savings accounts (including those health or flexible savings accounts), investments for your future and retirement accounts.
Since you already included the minimum monthly debt payments for student loans, credit card payments, and car loans in your “needs” percentage, the debt paydown here includes extra payments above the minimum to reduce principal and save on interest.
It’s often suggested you build your emergency fund to at least three to six months of your family’s expenses. Once this is done, you can put additional money into short-term savings, boost investments, or make extra payments on any high-interest debt.
In your family budget guide, you would take 20% of your income or $1000 from the $5000 take-home pay example, to put toward savings and debt pay-down. If you want to make an adjustment, it is always good to add to this category! This is an incredibly important part of the family budget guide because it takes care of you today, prepares you for the future, and pays off the past.
Does the 50/30/20 Budget Rule Really Work?
One of the best things about this family budgeting guide is that it’s easier to manage than budgets with 10 or 15 different categories. If you are busy with work and life or if kids keep your schedule packed, breaking all of your expenses into very specific categories can be overwhelming and unnecessary. And it may make you give up on budgeting.
This budget rule is about security, moderation, and flexibility and that’s what will help you stick to a budget. It makes sure you are taking care of everything needing to be addressed while allowing you to still use the money for some of the things you really want. If you cut out all the fun and things making you happy, you probably won’t stick to your budget anyway.
Creating a Family Budget Guide
The percentages in 50/30/20 budget rule are a good way to start with budgeting. Remember, the percentages can be adjusted to meet your specific needs. Will 50/30/20 work for you or does 60/20/20 make more sense? Maybe 55/25/20 is just right. The key thing is that you start budgeting. This guide to family budgeting has been used successfully by many people and it can help you too.
A great way to get started is by using my family budget spreadsheet. This spreadsheet is the exact system my husband and I used to get out of $65,000 in credit card debt.
If you find out your needs are taking up more than 50-60% of your take-home pay, you may need to make some serious changes. Reducing housing costs, grocery bills, and your transportation costs all at one time might be too hard. But tackling one expense at a time can make a big difference. Once your expenses start aligning more closely with the 50/30/20 budget rule, you’ll see faster progress on your financial goals.
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