A good budget is the basis of financial wellness but when you have a family, it’s an absolute necessity. Not only do you have people depending on you, but you most likely have more expenses than the average single person does as well. Money can be a stressful topic for some families, but if you put a solid budget in place with all the components you need to thrive, everyone in your household will feel much more stable.
If you want to improve your family’s finances or even set new goals, be sure to include these 5 basic categories into your family’s budget.
1. Extra Debt Payments
While it sounds obvious that you should budget for debt payments so you can work toward paying all your debt off, at least two-thirds of Americans don’t budget and according to NerdWallet, the average household debt carries $130k in debt – $15k of which is credit card debt.
I’m sure we can all draw the same conclusion from these statistics. American families need to budget for extra debt payments in order to improve their finances.
If you are making the minimum payment on your debt each month, it will take you a pretty long time to become debt free. Plus, you’ll pay thousands of dollars extra in interest over time.
The best thing to do is set a fixed amount you’d like to put on your debt each month and pay it early so you won’t have to worry about it toward the end of the month. It doesn’t matter if it’s $50 or $150 extra that you put toward your debt at first because it’s all about getting into the habit of putting extra money toward the balance.
2. Emergency Savings
Living paycheck to paycheck is not sustainable which is why you need emergency expenses. If Something happens to your car or home and one of your kids has an emergency during the same month, you need to make sure you can cover those expenses without having to resort to credit cards or loans.
Don’t wait until the end of the month to contribute whatever is left into your savings account. Set up a high-yield savings account and automatic withdrawals to occur right when you get paid each month. It’s recommended that families set aside at least 6 months’ worth of expenses in an emergency fund. You may need more depending on your situation.
3. Entertainment Spending
Entertainment spending is not a necessity, but realistically, you and your family are going to want to do fun things together every now and then. I personally find it very difficult to find absolutely free methods of entertainment, so I am more in favor of frugal entertainment because I think it’s more realistic.
For example, there’s a free zoo in Chicago that is open 365 days of the year. While the zoo is free, I live in the suburbs of Chicago and would need to either pay for city parking or a train ride in order to get to the zoo. Plus, I have to consider lunch options when we get hungry. Even if we pack a lunch so we don’t have to purchase food from vendors at the zoo, we still have to spend money at the grocery store on food for our outing. While the zoo itself is free, the overall experience requires me to spend a little money which is why including entertainment spending in your family budget is a must.
My entertainment budget is pretty low, but at least it’s there as an honest guideline for me so I know how much my family can spend on ‘fun’ without feeling guilty about it from a financial standpoint.
No one wants to work forever, and no matter who you are, you should be saving up something for retirement. If your job offers a 401(k), this is a great option to start with. Be sure to ask if they offer a match program where they will match your contributions up to a certain amount. If they do, try to contribute enough to receive the match program, because that’s basically like receiving free money.
If a 401(k) isn’t an option for you, you can always open a Roth IRA which is an individual retirement account. You can contribute up to $5,500 per year as long as your household income doesn’t exceed their limitations.
If you can max out your retirement accounts each year, great. But if you can’t, this shouldn’t deter you from contributing anyway. Something is better than nothing.
5. Education Savings
College is going to be much more expensive than it is now when your kids get older which is hard to imagine, but very true. Even if you don’t intend to pay for your child’s entire college education, you can start setting aside what you can in a 529 plan because it can help your child cover some of their expenses and avoid having to take out student loans.
Generally the earlier you start saving, the lower your monthly contributions can be.
I know these preferred family budget categories can seem slightly overwhelming on top of taking care of all your regular monthly expenses each month, but doing all of these things will help improve your household’s finances and allow your family to become more stable and ready to take on anything life throws your way.
My recommendation is just to pace yourself and start by doing what you can.
These rules are not written in stone. If you have a lot of debt right now and can’t open a 529 for your child, start saving a financial safety net and focus on getting rid of your debt while taking a year or two off from saving for college. You can also cut other expenses in your budget to prioritize these 5 categories.
At the end of the day, it’s about being able to support yourself and your loved ones by simplifying and prioritizing your needs.
How many of these budget categories do you have and what are you prioritizing right now? Did you cut any of your other expenses?