The objectives of family budgeting work together to help you achieve the things you want in life, including financial prosperity. Older children will benefit from being included in the process, as they will learn the knowledge and skills to support themselves upon reaching adulthood. Effective family budgeting has to account for spending that does not have receipts, such as the vending machines at work or going to the laundromat.
Identify Your Goals
Each family will have different goals, depending on your lifestyle and the cost of living where you reside. For example, a family living in a high-priced city might have the goal of moving to its less-expensive suburbs to find an affordable home. Other family goals include saving for college, affording a special vacation, planning a comfortable retirement, or starting a business.
The most important component to control spending is having all family members in agreement with the new budget. Divide the budget into fixed and flexible categories. Fixed categories are those you cannot change, such as a housing payment or prescription medicine. Flexible categories are those that you have at least some control over, including groceries, utilities and entertainment. Once the family members make a list of all spending, they can concentrate on the objective of reducing each flexible budget category to a minimal amount. This frees money toward achieving the goals your family identified.
Design a Savings and Investment Plan
Emergency savings should equal enough money to support your family for the number of months your profession averages when looking for work. According to the Bureau of Labor Statistics, 40 percent of people who lose their jobs are unemployed more than six months before finding another job. Set an objective of building savings as a cushion against emergencies, including loss of income. If any of your goals will occur within one year, then include this amount as short-term savings. Long-term investments will fund your other goals, including retirement.
Financial prosperity will occur faster once you have eliminated debt, especially high-interest loans and credit cards. There are two common ways of tackling debt. One method pays extra budget money toward the highest interest debts first, with the intention of having more of your dollars go directly toward principal. The other method, called snowballing, entirely pays off the smallest debt first to lower the number of creditors. This is helpful if you might lose your job, as there will be fewer monthly payments each month should you need to cut back to the minimum amount.
Diane Perez is a writer who contributes to various websites, specializing in gardening and business topics, and creates sales copy for private clients. Perez holds a Bachelor of Science in education from the University of Miami.