Creating a family budget first requires gathering all of the pertinent information and creating a folder for each of the following:

1. Installment Debts: These are monthly payments such as credit cards payments, mortgages, installment loans, and car payments. Know your outstanding balances, interest rates, and minimum monthly payments.

2. Fixed Monthly Expenses: This would include monthly, routine bills like utilities, phone, insurance, cable, and rent. It doesn’t include expenses like food, clothes or gas. We’ll cover those later. Some of these items will vary a little from month to month, so you will need to estimate as best that you can.

3. Income: Include not only your main occupation, but also other sources of income, like child support or alimony. You will need this information in order to create an accurate budget.

Now, add up your monthly net “pay,” from all sources of income. Add up your installment debt and fixed monthly expenses. Subtract the expenses from the income and the difference is your net margin.

Keeping this net margin number in mind, figure out what you need to cover essentials such as food, gasoline and clothing as well as what you can allow for entertainment and recreation.

Don’t cheat yourself by making this figure too low. You should always allow some extra money for family fun like birthdays or unexpected expenses like vet bills. Subtract this from your net margin. What’s left is excess money.

Here’s a sample family budget:

Monthly Net Income:………………… 4,000

Monthly Installment Debt:…………… -1,500

Fixed Expenses:……………………….. -500

Net Margin:……………………………….. 2,000

Essentials, Recreation:……………. -1,200

Excess Funds:…………………………… 800

How can you budget the extra money?

In this example, the family budget shows an excess of $800 per month.

Extra money can be used in one of three different categories or a combination:

1. Save or invest

2. Spend

3. Apply it toward debt

A balanced approach can work best. You may not want to spend it all or save it all or pay off debt with it all. Priorities should of course be paying off high interest credit cards. Any debt with a rate over 15% annually should get put at the top of the list.

Of course as you eliminate debt the excess funds will continue to increase and you will have to make new decisions about what to do with excess funds. Once high interest debt is paid off, the next priority can be saving. The more you have saved or invested, the more money you can be comfortable spending each month.

Final Words of Advice on Creating a Family Budget

Budgeting is not as difficult as it might sound once all of your information is on hand, organized and recorded. It only takes a small effort to organize and plan your monthly inflow and outflow of cash, and then determine what you have left over for savings, spending, or debt reduction

Don’t set yourself up for failure by budgeting too little for spending or too much for savings or investments. You are more likely to stay within a reasonabable budget.

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