I come from a big family, where a well-structured household budget isn't just about crunching the numbers. It’s about creating a lifestyle that nurtures and accommodates shared financial goals and mindful spending. In this article, I’ll cover the significance of household budgeting, walk you through the steps to create one, and highlight some practical tips from our co-founder and COO at Franc, Sebastian Patel, to sustain your finances.
Why is a household budget important?
A budget ensures that your expenditures are controlled and your savings are aligned with future financial goals. Sebastian advises that when you budget, “you know where your money is going.” He adds that this is a great way to uncover places you didn’t know your money was going. For instance, knowing how much you spend in the insurance category of your budget will probably help you realise that you’re overspending on a certain insurance product, which will then help you either find a better product with a different insurer or renegotiate what you have.
Life always has unexpected events springing up on us. Budgeting for your household could help you make unexpected events – such as a job loss, death in the family, home repair or even going through a divorce – a bit more financially bearable. Sebastian believes that a big priority you should consider in your household budget should be regularly putting money away for building your emergency fund before you start to build your wealth.
How to create your household budget
Step 1: Build Your Budget Blueprint
Utilise a budgeting tool, an app such as 22Seven, or a spreadsheet to start to document and identify income and expenses across various categories. This is where we make your life easy by providing you with a downloadable household budget template that your entire family can access and use. Ensure your spend isn't more than your total income!
Step 2: Bring Together Income Streams
Gather all the financial streams within your household and let them form a comprehensive picture of your income. These include any money coming in, such as salaries, side hustles, grants and investments.
Step 3: Identify Expenditures
Examine your expenses closely. Classify them into recurring costs, like bills and rent, and flexible ones, such as groceries and entertainment. This snapshot of spending patterns is crucial for your financial journey ahead. “If you’re new to budgeting, the first thing is to record money coming in and money going out. Then, categorise the money going out.
Step 4: Prioritise Needs
Distinguish between needs and wants. Ensure that essential expenses that keep the household running smoothly are separated effectively from spending that adds comfort or enjoyment to your lives. In this case, needs can be expenses such as groceries, rent and school fees, then wants could be classified as expenses such as family vacations, concerts, movie outings and so on. Always remember the 50/30/20 budget split,” Sebastian mentions. Elizabeth Warren's 50/30/20 rule dictates that you should aim to spend 50% of your income on needs, 30% on wants and 20% should go towards saving and investing for the future or repaying debt.
Step 5: Set Unified Goals
As a team, chart out your financial goals. Whether it's establishing an emergency fund, paying off debts, or saving for a shared experience, these goals form the backbone of your budget. Continuously updating your progress also helps you make better financial decisions that will help you reach these goals.
Maintaining your household budget
Assess Finances Regularly: Schedule periodic check-ins as a family to review your budget and overall finances. Life evolves, and so do your financial needs. Make adjustments accordingly.
Be Honest and Open: Keep the channels of communication open among all members of your household. Being transparent about financial objectives and challenges helps everyone work together nicely to reach unified financial goals.
Have Realistic Projections: Create a budget that aligns with your reality as a household. Strive for balance and avoid expenditures that might lead to frustration.
Build A Safety Net: Always have an emergency fund that cushions unforeseen financial blows. It’s one of our top savings goals on the Franc app: in fact, 22% of our investors have emergency funds set up on their Franc account.
Creating a household budget isn't just a financial task; it's a way to achieve the lifestyle and financial goals of your family’s dreams. Whether it's saving for that dream family vacation, buying your dream home, funding your children's education, or securing a comfortable retirement, a well-thought-out budget is the bridge between your present financial situation and your family's financial dreams.