How to Create a Family Budget that Works (2024)

If you have ever looked at your bank account and wondered where all the money from your paycheck went, you are not the only one! Many of us don't realize how much we spend or really pay attention to what we spend it on.

If you were to start keeping track of exactly what you buy each week, you might realize that your daily morning coffee out is sucking way too much out of your income and decide to start making it at home. Or you might reconsider whether you really need to pay for all those channels you don't watch, and decide to put that money towards a sleep consultant to help your infant sleep for longer stretches.

Creating a budget empowers you to decide what you want to do with your money. Here, learn all about the importance of establishing a family budget and how to do so.

Why Budgets Are Important

Financial planning is part of taking good care of your family. Deciding how the family's income should be allocated is an essential part of parenting, along with things like making meals and snacks, keeping the floor clean, and providing kids with lots of love and cuddles. "Without a budget, you have no idea where your money is going and how much you can afford to spend on certain expenses and purchases," notes Andrea Woroch, nationally-recognized family finance and budgeting expert, writer, and on-air contributor for top shows like NBC Nightly News and KTLA Morning News. "[A budget] is like a road map that can help you get to your final destination or your saving goals."

First, there are the necessities—you will have mouths to feed besides your own and people to clothe besides yourself. You may need to move to a bigger home. Childcare, whether hired or done by a parent who stays home, is a major consideration when it comes to budgeting for a new family.

Planning ahead also becomes more of a concern. Maybe you want to be able to go on family vacations or send your kids to special classes like ballet or karate. You may also want to plan for the future and save for things like retirement and your kids' college tuition. Emergency funds are another important consideration to help you stay afloat should a parent experience hardship like illness or job loss.

"A family budget is important in avoiding wasteful spending and can help you reach various life goals faster," says Woroch. "It allows you to be more intentional with your money so you can spend it on the things that matter to you and your family."

There is so much to consider when creating a family budget, and it can be overwhelming. But if you learn how to lay out a plan, you can make a budget that meets your family's needs and matches your income.

Types of Family Budgets

There are a few different ways to budget, and you can choose the one that you think will work best for you and your family. You can also combine parts of each type as needed.

50/30/20 Budget

The 50/30/20 budget method puts 50% of your income for essential bills like insurance and mortgage, 30% into "fun" or luxury spending, and 20% into savings or debt.

If family budgeting feels overwhelming to you that you procrastinate actually doing it, a 50/30/20 plan may be a good place to start. "This type of budget can be more manageable for families to follow since it’s not as strict or time-consuming to plan and review," notes Anthony Martin, the CEO and founder of Choice Mutual and an official member of Forbes Finance Council.

Envelope Budget

A traditional envelope budget uses cash in envelopes that are labeled for different categories, such as groceries and daycare payments. Wendy Hall, a Texas-based mom of three, has nine envelopes with set amounts of cash in them that she replenishes each month. "We have accounts for our bills and grocery money, and my husband and I each have a 'fun money' envelope that we can use as we like each month," she explains. "This eliminates any disagreements about how the other person chooses to spend on leisure type things."

An alternative way to use this method is to create many different checking accounts, each to be used only for its own category. Anna Andersen, a Georgia-based homeschooling mom of three, has 13 different checking accounts allocated to different budget categories.

The envelope budget is useful for families who have trouble sticking to a planned budget because it gives you a more concrete representation of what you can and cannot pay for.

Zero-based Budget

With a zero-based budget, your income minus your expenses should equal zero. But that does not mean you are actually spending all of your money. It means that all of your income is allocated to some purpose—including money you spend and money you save.

For example, if you make $5,000 per month, you may spend a total of $3,000 on things like rent, groceries, baby formula, and preschool tuition, while putting the remaining $2,000 towards your emergency fund, your retirement, a vacation fund, and your kids' college savings.

How to Create a Family Budget

Setting up a family budget takes time and careful planning, but it's completely doable if you follow a few important steps.

Calculate Your Income

Start by figuring out how much you and your partner, if applicable, are bringing in each month. If you have two regular paychecks, this might be pretty straightforward. But some families will need to put more thought into this step. For example, if you have a side-hustle, own your own business, or work as a contractor—be sure to include this income as well. If your income varies, try to take an average. You may want to estimate on the lower end for income that varies each month, and put any excess towards savings or paying down debt.

List Your Expenses

After you have a number representing how much money comes in, it's time to look at what goes out. Consider your rent or mortgage, any bills, and other expenses such as childcare, groceries, diapers, formula, and more.

Count the essentials first, and subtract the total from your income. Then allocate some of the remaining money toward an emergency fund, retirement, college savings, and paying down debt. What's left can be used for fun extras, like family vacations, movie nights, dinners out, or whatever your family likes to do.

Track Your Spending

You need a way to make sure you stick to your budget. This is especially important when you have a family budget, where two or more people are sharing and spending the money. Martin suggests using spreadsheets, bank statements, receipts, and budget apps to assess your family's actual spending.

"I use an app called You Need a Budget to track exactly how much we spend each month," says Andersen. "If I'm not using everything I allow myself for a certain category, I can reassess and allocate the excess toward savings or another category that I wish I could have more to spend in."

A Word From Verywell

The idea of creating a family budget may seem overwhelming at first, but once it's established and you get used to tracking each purchase, you'll wonder why you didn't start sooner. You may even find that you enjoy seeing where all of your dollars go—it can be empowering! If you're struggling to determine which budget method is right for you, consider reaching out to a personal finance expert or financial planner. You'll be a budgeting pro in no time.