Whether you are just starting a family or you’ve been living with a spouse and children for a long time, setting up a family budget is very important. As we begin a new year, now is a great time to look at family finances and create a family budget. To get you started, we talked to R. Joseph Ritter, Jr. CFP of Zacchaeus Financial Counseling, Inc.
Here are some tips from Ritter:
- Know where you spend your money. The budget outlines what you hope to happen. But there are often disparities between what you hope to happen and where you are currently. Creating a budget is like saying you want to visit the Grand Canyon, but unless you know where you are right now, how can you figure out how to get to the Grand Canyon? Understanding your current spending habits helps to place you on the map. In many cases, living by a budget means making changes to what you do currently with your money. Knowing where you spend your money now helps you understand what needs to happen to make the budget work and to reach your goals.
- Make short and long-term goals. The goals must be measurable (have a precise amount), attainable (reachable with your resources), and specify a time period. These goals must then be reflected in the budget. Saving $1,000 in 6 months, paying off $2,500 on XYZ credit card in 12 months, and $5,000 vacation to the Grand Canyon in 24 months are examples of goals. With this information, you know that $167.67 per month for 6 months goes into the budget for saving, $208.33 per month goes into the budget for the credit card, and another $208.33 goes into the budget for the vacation. Now you know how much you have left for other budget needs.
- Finally, create a basic balance sheet. Saving money and paying off debt are fantastic goals. But, once again, you need a road map to make things work. The balance sheet will show you the savings you have available and the debt that needs to be paid off. With this information, your budget can be crafted to more efficiently to reach your goals.