Having a hard time “stretching” your budget?

Whether you have your own family or you are single I know you’re doing this – wait – which one? The stretching of your budget or the budgeting itself? Are you confused? To set things right here are my own truths for seven easy steps to budget your family’s monthly expenses.

BUDGETING? WHAT’S THAT?

First and foremost do you know the meaning of it? This is a very crucial factor for you. Why? Because you cannot do something you didn’t understand. Let me help you with this one.

According to Merriam Webster’s Dictionary budgeting is “the amount of money that is available for, required for, or assigned to a particular purpose”.

Thanks to Merriam Webster it’s given meaning is understandable. Now let’s explain it further.

The definition has four parts. These are (and with each corresponding explanations):

• ‘the amount of money’ – refers to the total earnings of an individual or the combined income of a family.
• ‘that is available for’ – pertains to the money ready for use which called “cash on hand”.
• ‘or required for’ –  the compulsory needs or necessity of a family that should be met or satisfy.
• ‘assigned to a particular purpose’ –  the allocation of the money for each family’s needs.

Keeping all of these factors in mind we will come up to a clearer picture that budgeting is simply you, having a plan on how to spend your income for your family’s expenses. So how will you do budgeting on a monthly basis?

Based on the above statement I compiled seven easy steps to budget your family’s monthly expenses and in the end for you to satisfy your family’s needs. In the succeeding illustrations I will be using Peso Denomination, but you can also use other monetary denominations based on your country of residence. Let’s discuss it.

1. Know the Exact Take Home Money

You should know personally how much money you or your husband bring into the family. Most of us usually know the estimate amount only or worse the ‘guess’ amount. Simple reasons like you are very busy in other things or you just don’t ask your husband about his pay might be the culprits. You should be aware of the exact initial amount where you will create your budget plan, because if not then how can you start?

Is this so important Lai? Is this true? You may say.

Yes! We can’t neglect this part. I personally made this mistake.

For over five years I have been focusing myself on rearing our kids and have told my husband to take in charge in our family’s budget. Being new to motherhood I don’t want other things to preoccupy me but my kids and since I don’t know the budget I just asked my husband to buy anything that our family needs. At first there is no problem with that set up. But after sometime we discovered that we didn’t even save some money in that 5-year time span. Yes we have savings but we didn’t add more to it. All of this happened because I didn’t give any attention to our budget. So now I’m making amends. I’m taking in charge on our budget and should be more concern about it. Since now it’s not only me and my husband in the picture– but our children too.

So knowing how much money you or your husband is providing to your family is a must.

What we are talking about here is the net income. Maybe you know the monthly gross income of your husband but you actually didn’t know his monthly net income. There is a difference between the two. Monthly Gross Income is the amount of the salary before the taxes and other deductions. Monthly Net Income is the amount of the salary after the taxes and other deductions. Check out his payslip for that info. You will see the gross income pay at the topmost part and the net income pay at the bottom. That amount is the take home money. Now you know where you will start your steps in budgeting your family’s finances”!

2. Allot Twenty Percent (20%) As Your Family’s Savings

Since you know now the correct amount of the take home pay you can now make a wise act – you doing a conscious saving. This means before anything else you will allocate twenty percent of your take home pay for your family’s savings. You will deduct beforehand a portion of the net income and tag it as your Family’s Savings.

Most people do save after spending. They usually buy first their needs before they will save. But do you think it’s a good and bright idea? Both of us would agree no. When you do this way you will not save anything at all. That’s for sure. What we want is us being conscious savers and not the other way around. This is a great start for your budget since you intentionally set aside a specific part of your budget to be your savings. But you may ask “What is Saving”?

MEANING OF SAVING

According to Merriam Webster Dictionary, savings “is the act or an instance of economizing.” In simple terms you are economizing when you spend your money less and save it. By doing so your family will have a money ready for future use, like if you want it to grow you could put it in an investment. Or your savings can be use for the education of your babies in future. Just keep in mind that you will not use this savings but for your family’s future financial needs.We will tackle this more in my future articles.

So if your take home money is Php 20,000 per month you will set aside 20% of it for your family’s savings. It’s Php 4,000 to be exact. You will come up now to a new cash on hand amounting to 16,000. This is your adjusted take home money and where will you deduct your family’s expenses.

After you have saved 20% of your earnings and have your adjusted take home money, what’s next?

3. List Down the Expenses

After you already save a portion of your family’s net earnings I can say that this part of budgeting is your family’s own and unique smorgasbord. This is where you will see the different things your family needs, wants or anticipates to. Think and analyze the different kinds of expenses and types of spending your family has. You need a pen and a paper for this activity.

We will classify this into two groups. One is for your Family Needs and the other one is for your Family Wants. Simple words but very tricky ones. Each family has its own needs and wants. Maybe for you strolling at the mall is a need but in true sense it is only what you ‘want’. To give some head’s up a need refers to the things that everybody should have to live. It’s the essentials for a family to survive. While want refers to things that a person desires to have or to do but not necessarily required for him to live. Best example is buying a designer’s bag or an expensive latte.

For your benefit and convenience I made a sample outline for the typical monthly expenses of a family. You can modify it based on your own family’s needs and wants. With these you will understand how to budget your family’s monthly expenses.

4. Create Major and Minor Expense Groups

From your Family Needs and Family Wants Groups you can now identify which are the most important from the least important ones. With these you can create your Major Expenses and Minor Expenses Groups. Is budgeting so easy if you will just plan in this way? Definitely!

From your Major and Minor Expenses Groups you will see now your Expense Categories. Choose whatever you want to include in your Expense Categories. But based on the renamed groups you can somehow determine what are most essentials ones, the true needs of your family. Clearly it belongs to Major Expenses Group, right? So we will now be focusing on this group and set aside the minor ones.

We can almost see the body of your budget! Are you excited to complete the seven steps of budgeting your family’s monthly expenses? Put all your focus here as we build it. Keep it up!

5. Put Corresponding Amounts on Your List

Since this is a monthly basis budget you can now write the precise amounts for each expense categories. Do this with your husband (if you are married) or with your parents (if you are single) and work together to determine the correct amounts. Writing exact amounts and adding some allowance are good ways also to avoid shortages. Remember that you are filling in these blanks with your new and adjusted net pay.

Make the necessary adjustments or allowances with this modified net pay. If you see that you’re short in some of your Expenses Categories look for others in the list and balance it altogether. Maybe you put more amounts in others than what is needed or the other way around.

Then simply add all the expenses and with this you will see if there is still money left. You will assign that money for a Category that we will call the “Excess Cash” of the family. What is this about? Read the next step to know more.

6. Anticipate Other Expenses

You might think you write down all of your family’s monthly expenses but did you include the unexpected ones? Like when you buy medicine if your child gets sick? Or when the gas tank of your stove depletes and needed a refill for you to cook your evening meal? Where will you get the money for those unforeseeable things? To answer this is where your budget’s Excess Cash enters the scene. I also use this in our own budget. I model my sample budget list on a family with one child.

Excess Cash is for the random and unexpected expenses that can be happen in your family’s daily existence. I’m sure you know this. Apart from the major needs there are also some minor expenses that can occur in day to day lives. These are some examples:

To have an idea of the whole picture of the budget list here it is:

Now your budget list is complete! There’s only one more step to follow to succeed on budgeting your family’s monthly expenses. Let’s use it now!

7. Use Labeled Envelopes For Segregation

We will be using your newly created budget list plan for the physical segregation of your take home money. You can use envelopes or something that you could use to sort out your money paper bills. Physical money segregation is important for you to realize your budget goals.

Labeling envelopes greatly helps you to know where you will be getting money for a specific need of the family. Label each envelope according to each need. Write the word “Savings” for the envelope of your allotted savings. Tag other envelopes according to each Expenses Categories of your Major Expenses. Mark “Excess Cash Fund” in the envelope of your budget for Random Expenses.

Based on your budget list count now how much money you will put on each envelope.

So how many envelopes did you completed? Mine’s twelve! Whew!

And now you’re set and your budget is complete with only seven steps! What a relief! Congrats! All you have to do is to implement it and follow it wholeheartedly!

To make sure that you will succeed in your budget goals and to avoid ‘stretching’ it, these are some of my sincere tips to you:

• Faithfully follow what you plan – your efforts of putting your budget all together with become worthless once you did not apply it in your everyday life.

• Make a log – If you can monitor your everyday expenses by making a log and writing each and every amount of money you will spend from your budget then do so. I personally do it to for my Excess Cash Fund. I want to know where and when we spend it. Especially the small amounts, you will be surprise on how much your family spends per day.

• Make being thrifty a habit – Less spending is more! Teach yourself to be frugal for most of the time. It might be difficult for you right now but it will bring you more comfort in time. It depends all on your determination to save for your family.

Who would say that budgeting is hard? What you only need is a simple planning with your family, some basic math and a firm resolution that you will follow your family’s monthly budget plan

What can you say about this article? Does it give you more knowledge about budgeting?Do you experience the same problem in budgeting? Let us hear your thoughts in the comments. =)