How to make a family budget

Groceries. Gas. Maybe even cable television. You’re likely already familiar with the costs that make up a household budget. But have you thought about actually building one?

A family budget can get everyone in your household on the same page when it comes to money. It isn’t about saving pennies or building a bigger bank account balance. Instead, a family budget helps everyone come together around common goals that you can achieve through strategic spending and saving.

Before we talk about how to make a family budget, let’s start with the basics.

A family budget is a game plan for your family’s money. It identifies where and how your money comes and goes by focusing on income and expenses. Also, it reflects your family’s goals and values by how you spend and save.

Jen Smith, personal finance writer and creator of a financial wellness blog, says a family budget can be a simplified version of what you do when you make your household budget. For example, it may only include items that have a direct impact on the kids, instead of including every single expense.

“While it’s important to start talking about budgets and money with kids, you have to simplify it to a level they’ll understand and won’t be overwhelmed,” she says. The results will be worth it, she adds. “Planning a family budget with your kids will help them learn the importance of earning money, how to spend it and what happens when it runs out.”

Your next question might be: How do you make a family budget? Smith and Kevin Payne, creator of a financial blog, provide the following tips to help you plan a family budget:

If you’re already comfortable with how to make a household budget, you might be tempted to take over and do all the heavy lifting yourself. Not so fast.

Creating a family budget should be a family affair. After all, “kids are a part of the family,” Payne says. “That doesn’t mean every money decision is a family decision. But kids feel a sense of ownership and responsibility when you include them in money discussions.”

Creating a family budget together means everyone is on board—and more likely to stick to it. And everyone truly means everyone, from young children to teens with their own checking accounts and cars. Research has shown how important it is to have money conversations with your family. In fact, a study by Brigham Young University researchers reveals that toddlers and young children are already forming money habits, values and attitudes.

Talking about money doesn’t have to always be serious, Payne says. You can even make a game out of it: “If you’re out shopping, make your kids guess the grocery bill amount when checking out,” he suggests. These everyday conversations get your little ones comfortable with talking about money. They also lay the groundwork for your family budget meetings.

To make your family budget meeting a success, choose a time when no one is feeling stressed or distracted. Try to avoid scheduling it during busy times, like work hours or after-school activities. Smith also suggests asking everyone to leave their smartphones and other devices in another room. That way, everyone can stay focused on the conversation.

Struggling to get your kids to participate? Smith has an idea: “If it affects their allowance, they’ll get involved,” she says. In other words, make participation in the family budget meeting part of the requirements for earning allowance.

“You shouldn’t necessarily force them to budget their own money, but they’ll at least pick up on the importance of budgeting as it relates to earning income,” she adds.

Once you’ve gathered around the table, it’s time to start planning your family budget. Begin by naming the major categories to include in your household budget.

Keep in mind that you want your budget to fit your family’s specific needs. Your family budget will likely be based on four main categories, which are spelled out below. However, each family is unique and your budget breakdown should reflect that.

Fixed expenses

Fixed expenses recur monthly and may include rent, phone bills, daycare or subscriptions. You can bring the kids into conversations about these types of expenses, Payne suggests. For example, you may ask, “How much do you think our house costs?” They may not guess the correct amount, but the conversation will help build their financial awareness.

Variable expenses

As the name implies, variable expenses change from month to month and can include groceries, utilities or entertainment. It’s essential to help kids understand the basics of your family’s expenses, both fixed and variable, Payne says. “It gives them a more complete understanding of how much it costs to keep a roof over your head, put food on the table every day and pay for all of the luxuries we tend to take for granted,” he says.

Debt

This can include credit card debt, student loans, mortgage or any other debt you’re carrying. Parents often don’t talk about complex financial realities with their children, Smith says. However, that doesn’t help them. Instead, consider talking through an aspect of your debt during your family budget meeting. “Share why it’s there, how you’re paying it off and why it’s important to do so,” she says.

Savings

This may include your family’s emergency fund, other savings accounts and retirement accounts. Two common types of retirement accounts are 401(k)s, which are employer-sponsored retirement accounts and individual retirement accounts, known as IRAs, which are set up by an individual rather than an employer. Savings are important for kids to understand, Payne says. Use your family budget meeting to talk through why your family is saving money today to support yourselves in the future, he suggests.

These four categories will make up the bulk of your budget. Rather than feeling like a burden, breaking down these expenses may in fact be freeing, Payne says. “When you make a plan with your money based on what you value, you don’t get as caught up in what you might be missing out on,” he says.

After you finish creating your family budget, it’s time to see if you can fund each category. Whether you take notes on a whiteboard, on paper or electronically, write down your planned expenses. Then review your list and make adjustments as needed to fit your budget.

“Prioritize the list first. Then go through it and assign a dollar amount to each activity,” Smith says.

Beyond these four major categories, you may have additional spending areas. That could be on things like birthday parties, holidays, vacations and more. You may want to make each of these a separate goal. With multiple savings accounts, you can save throughout the year to build up to each goal. For example, 360 Performance Savings offers a high rate to help your balance grow.

As you add up your expenses, you may find you’re falling short in a certain area. For example, if you don’t have the funds to take the vacation you want, you may decide to cut back on your entertainment budget, Payne suggests.

Asking everyone to cut back on entertainment spending by a relatively small amount, such as $10 a month, can make a big difference over time. Set those savings aside in a dedicated savings bucket. Before long, you'll be closer to affording a family vacation on a budget.

You might find that having more predictable expenses each month can make it easier to stick to a household budget. Budget billing lets you pay the same estimated amount for your utility bills each month, even if your actual energy use changes with the seasons. That consistency can make it easier to plan your monthly spending and avoid large swings in your utility bills.

In the end, this process is all about taking time to make sure your family budget reflects your values and priorities.

No two families’ finances look the same. That’s why it’s important to make a family budget that accurately reflects where your money comes and goes.

Smith prefers a zero-based budget. How does a zero-based budget work? You direct every penny of your budget to certain categories. The most common ones are spending, saving and investing. “It’s what we’ve used since beginning our financial independence journey, and it’s worked for us,” Smith says of her family. Many people like zero-based budgeting because it helps them spend with more purpose by showing where every dollar is going.

Other people use an envelope system. In this system, you withdraw the amount you’ve budgeted for each of your variable spending categories each month. That cash goes into a separate envelope for each category. Your goal: Spend only up to the amount you’ve placed in each envelope each month.

This can be helpful with family budgeting, especially with young children who rely on cash instead of debit or credit cards. Each child can be given their own envelope, or you might decide to share envelopes based on categories.

After you determine how to make a family budget, it’s time to test it out. Track your spending for a month. This helps your family see where the money is going and whether it matches the game plan you created together, Payne says.

Some families choose to track their spending manually in a notebook or spreadsheet. “You might also check out some of the different apps that track and categorize your spending for you,” Payne says. Many of the best checking accounts for busy families allow you to sync your account with online budgeting tools. These spending insights can help you assess your budget at the end of each month.

This is also a great time to revisit your list of budget categories to make sure you’re putting your money where your goals are.

Once you’ve finished planning your family budget, you might find you’re overspending in certain categories. You can then decide as a family if you want to rethink the plan or cut certain costs, Smith says. “This can be a great motivator for kids to earn extra money for things the budget can’t hold or do their part in lowering costs associated with things like energy consumption, food waste and so on.”

Remember: Spending less doesn’t have to mean having less fun. Whether you’re making an art project with materials you found in the recycling bin or taking a staycation, with a little creativity you can find plenty of ways to keep your kids busy on a budget.

And don’t forget about other ways to cut costs. For example, you may want to research family meal ideas on a budget to trim down your grocery bills.

In addition to reducing expenses, you may look at ways for your family to bring in extra money. For example, older children and teens might choose to contribute to the entertainment budget or even help pay their phone bill. They can do this with money they earn from chores or part-time jobs.

If you think you only create a family budget once, think again. Your budget is a living document that should grow and change with your family and its goals. 

• The key for how to make a family budget is to get everyone involved. Including kids in age-appropriate money conversations can build healthy financial habits that last a lifetime.

• Tracking your spending, organizing expenses into categories and checking in regularly can help keep your budget on track. This makes it easier to achieve your family’s overall financial goals.

• There’s no one-size-fits-all approach to budgeting. Choose a system that works for your family, and don’t be afraid to adjust it as your needs and priorities change.

Capital One offers the 360 Performance Savings account as well as the Kids Savings Account, which is a kid-friendly way to save, where they’ll learn banking basics with you right by their side.