3 Steps to a Family Budget

By Bill Richardson
Former Executive Director, BCAP

Remember the words of the old song “April showers bring the flowers that bloom in May”? Well, for some families, April showers have been bringing something else. They’re still bringing the unpaid bills from last year’s Christmas celebrations.

Sound familiar? You are not alone! It’s really not fair to just blame Santa Claus for a family’s problems in making ends meet. Debt, spending more than you have, has become part of the American way of life. But it’s not, let’s repeat, IT IS NOT, a healthy way to live. Sooner or later the chickens (or maybe the reindeer) will come home to roost.

The good news is that help is available. Your friendly neighborhood budget counselor can help you get started. The bad news is that YOU have to be willing to do most of the work yourself.

What budget counselors tell people is that right now, this spring, is the best time to start. Why? The heating season with all its high bills is over. And many households get a little extra boost to their income from the always welcome tax refund check.

So if you’re serious about it, now is the ideal time to work on setting up and actually starting to follow a monthly family budget. Do it NOW! This is how ...

What do you need to start? A budget requires time, discipline, and honesty. Time is involved in making a plan and keeping track of how you spend. Discipline means you set limits for yourself and stick to the plan. And honesty means you have to be honest with yourself about what is really necessary, and what you can do without.

Here’s the first thing to do. Make a list of all your monthly obligations. The list must be as accurate as possible. List them in 3 different categories:

1. Housing expenses. Be sure to include rent/mortgage payments, utilities, property taxes, and homeowners or renters insurance if you have it. Include your phone (even if it’s a cell phone) and cable costs.

2. Credit obligations. Include car loans, credit card debt, and any other accounts or bank loans which you pay monthly (not mortgage – you covered that under housing.)

3. Living expenses. Food, clothing, laundromat if you use one, education, entertainment, gifts for birthdays and holidays, and medical expenses. Two really important ones are transportation (don’t forget car insurance) and childcare. This will be your longest list. Don’t forget anything! Include a category for miscellaneous.

Families often think they have enough income, they just don’t know where it all goes. This list should show you where it goes. The next step is to add for each item on the list the monthly amount you think you are actually spending. Also add the date bills or payments are due. Here’s where you must be honest with yourself. Write everything down. You need to know where even small amounts are going. Just buying a newspaper everyday can add up to something significant.

Now, here comes the reality check. Write down your NET income each month. Include income that is reliable. Don’t count on overtime. Don’t count on that monthly support check unless you really know its going to be there.

Next do the math. If expenses are higher than income, start figuring out, as soon as you can, where things can be cut back. If income is higher than expenses, that doesn’t mean you should start spending more! Think about saving for the rainy day that is going to come sooner or later. Or save for something that’s big and important. Buying a house, a better car, a college course, or a well earned vacation…

Once a budget is drawn up, you’ve taken the first step toward good money management. But remember this first shot at a budget may involve a lot of guess work. Keep testing it against what’s really happening in your life. In fact you should probably revise and update your monthly budget and your spending plan at least every six months. This is especially important in the beginning. Most people need 3 or 4 months to really identify what their spending patterns are and where cuts in expenses can be made.

The next step is to consider getting some help from a budget counselor. Don’t be too proud. Think of a visit to a budget counselor as a visit to your financial health club. To really make and follow a workable budget, most people need the discipline of a regularly scheduled counseling session. It’s how they stay in financial shape! Try seeing a counselor once a month.

Also understand this: to get budgeting advice you don’t necessarily have to pay for it. Counseling is available for free at a number of community agencies.

Budget Counseling and Monthly Budget Plans can make a huge difference in improving family finance problems. Bills can be paid on time. Unnecessary penalties and interest can be avoided. Some funds can almost always be set aside to save for a brighter future for you and your family.

Give it a try. And remember right now is the best time to start.

For help with family budgeting, call George Miller, Director of BCAP's Budget Counseling Center at 610-375-7866.