How to Establish a Family Budget

by Catherine Chase

It doesn't matter if you've just won the lottery or you're living paycheck to paycheck: sticking to a budget can help keep your family finances balanced. Develop a family budget by pooling together all monthly income and divvying it up amongst your typical expenses. Mary Hunt of “Woman's Day,” who prefers to call it a spending plan, recommends adjusting your budget regularly as your financial needs change.

1. Write a list of all fixed expenses that you must pay each month. Fixed expenses are ones that remain constant from month to month. List the amount you spend on housing, transportation, insurance payments, child care expenses and loan payments. Write the dollar amount next to each of these categories and then add up the total.

2. Analyze your checkbook or bank statements to determine your variable expenses. Variable expenses tend to change from month to month. These include food, clothing, utilities, medications and fuel for your vehicles. Exclude non-essential categories from this list, such as entertainment. Write the dollar amount next to each item and add up the total.

3. Add up all of your monthly income, including your spouse's income, if applicable. If you are self-employed, exclude the money you set aside for taxes. The amount a self-employed worker should set aside for taxes may fluctuate from year to year. At the time of publication, the IRS recommended setting aside 13.3 percent for Social Security and Medicare taxes. This percentage does not include state income tax.

4. Subtract your total fixed and variable expenses from your family's total income. The amount that you have left over is the amount your family can save and spend on non-essential items each month.

5. Set aside a certain amount to save each month. Consider your long-term goals, such as retirement, buying a house, saving for your child's college education or setting up a trust for your children or grandchildren. Estimate the length of time you have to save for your goal and the total amount of money you wish to save. Divide the amount of money you need by the number of months and set aside this amount each month. For example, if you wish to save $5,000 for a remodeling project and you'd like to complete this project in one year, save about $416 each month.

6. Set aside the remaining money for a rainy day or emergency fund. Laura T. Coffey of also recommends setting aside a little “mad money,” or money to have fun with occasionally and spend however you prefer.

7. Re-examine your budget if you ended up with a negative balance after subtracting your spending and saving from your income. Analyze your variable, non-essential expenditures first. There may be a few things you can cut back on to save money. For example, if you tend to order takeout food twice each week, try to reduce this to once per month. If you're still short on cash after paring down your non-essential expenses, examine your other expenses such as utilities and car payments. Perhaps you could turn the heat down in the winter and drive a less expensive, fuel efficient car to save money. If you rent your home, consider moving to a less expensive rental.


  • Some people prefer to keep their monthly cash in separate envelopes for separate expenses. Spending cash can help some people to cut back on non-essential, variable expenses.

Items you will need

  • Checkbook
  • Bank statements
  • Envelopes

Photo Credits

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