Once the family has determined its short and long term financial goals, it is time to begin establishing the budget. The purpose of the budget is to match financial resources (income, interest earnings, etc.) with savings and spending needs on a periodic basis. Family budgets can be monthly, weekly or in some other frequency. What has worked best for us is to budget bi-weekly since that is the frequency of my pay checks. We look each payday and set a budget for the coming four to six paydays.
In terms of our income, we have some fixed income amounts such as the biweekly paycheck from my employment. This we budget as income. Also, we have some variable income from outside sources which is generally available but not always. These amounts we budget to go into our short-term savings accounts.
In the process of budgeting for expenses, it is important to look at needs and timing, and to identify priorities. In our family's budgeting process, we look first at our fixed obligations. For example, the house payment is a fixed amount each month. Payments on other loans for cars, education or other obligations come in this category as well. These costs generally have a regular payment date and amount. We also set aside a fixed amount each month for savings and for retirement; these are included in our fixed obligations.
Next we consider expenses over which we have some control. These include utility bills, groceries, subscriptions, automobile expenses, clothing and the like. These we budget to fit around our fixed expenses. We try to take in seasonal variations. For example, our natural gas bills tend to be higher in the winter, while our electric and water bills tend to be higher in the summer. We try to be realistic in our budgeting, but we also know in a month when we may have higher auto expenses, we may have to cut back on groceries or clothing.
One thing we have also tried to work on is known expenses which may be coming later in the year. Foe example, we try to program savings throughout the year to cover our Christmas gift budget. Or if tuition is due for our daughter in college, we program that into our short term savings as well. Then, we are not surprised or stressed when the bills come due.
A very good budgeting tool is available at the Practical Money Skills site. The budget calculator helps you explore ways to balance your income and expenses on a monthly basis. We have set our family budget up on a spreadsheet program that allows us to update it as needed.
