How to Create a Family Budget

Elizabeth S. | April 17, 2023

Mastering your finances is a must for anyone, or any family, who wants to live within their means and enjoy some extravagances from time to time. A great way to ensure you can make ends meet but have enough to set aside for a rainy day is to create a family budget. We’ve outlined the key steps to create your family budget and help you master your finances. 

4 essential steps to create a family budget

Creating a family budget takes some time, diligence, and perseverance. But more so, realizing that the process is not a one-and-done or set-it-and-forget-it strategy is essential. Budgeting requires some initial work but needs to be revisited frequently to ensure you meet your goals. The best place to start is by determining the approach you will take to set your budget. We recommend the 50/20/30 methodology

U.S. Senator Elizabeth Warren developed this plan and offers practical guidelines to help you with your family budget regardless of political affiliation. With this system, budgeters apply 50% of their money toward their needs, 20% to their savings, and 30% to their wants. Let’s dive in a bit further:

1. Figure out where you are spending your money

The first step in creating a family budget is understanding where your money is spent in the first place. This process doesn’t need to be fancy, so you can either pull up a blank spreadsheet on your computer or get some scratch paper to start. 

Make a list of the needs that you are spending your money on. Be sure to write down who the money goes to and the average amount you spend each month. You can think of these as your essential expenses, such as:

  • Rent or mortgage payments
  • Utilities such as electricity, gas, water, and internet
  • Groceries and essential household supplies
  • Transportation expenses such as car payments, gas, and public transportation costs
  • Health insurance premiums and medical expenses

Next, think about your savings. To do this, you should reference the balance in your savings account (and how often you make deposits), your 401(k) balance statements, etc. Typical items here often include:

  • Contributions to your retirement account, such as a 401(k) or IRA
  • Building an emergency fund to cover unexpected expenses
  • Paying off credit card debt, student loans, or other outstanding debts
  • Investing in stocks, bonds, or real estate

Finally, think of the things you want that you tend to spend your money on each month. These are optional expenses such as dining out, entertainment, travel, and hobbies. More specifically, think about your expenses over the last three months and consider what you spend on the following:

  • Dining out or ordering takeout food
  • Purchasing clothing or personal care items
  • Entertainment such as movies, concerts, or sporting events
  • Travel expenses such as flights, hotels, and rental cars
  • Hobbies and leisure activities such as gym memberships or classes

2. Work backward

Now that you have a good summary of where your money is going, it’s time to determine if your expenditures are balanced according to the 50/20/30 rule. But before we do that, let’s ensure you understand two important financial terms and the differences.

  • Gross income - Your gross income is the amount you earn before any deductions or taxes are removed. This includes all sources of income, such as your salary, wages, tips, bonuses, and any investment income you receive. 
  • Net income - This is your after-tax income. Consider this the money you see on your paychecks after all those deductions such as federal income tax, state income tax, Social Security tax, Medicare tax, health insurance premiums, retirement contributions, etc. The 50/20/30 rule is based on your after-tax income (net income). 

Now that you know the difference between these two important financial terms, add up the average amount you spend each month in each of the three categories we mentioned: needs, savings, and wants. Compare the totals of each of those categories to the recommended allocations from the 50/20/30 rule. Are you spending more or less than 50% of your net income on your needs? How much are you contributing to a savings plan? Are you going out too often?

3. Consider the lifestyle changes you need to make 

Now you are moving into the actual budgeting phase. At this point, you should have a good idea whether or not you spend too much in any of those three categories. Thankfully, it is easy to make changes if you spend too much on your savings or your wants. For these categories, simply understand the maximum amount you should put towards each, and ensure you don’t go over in future months.

Making changes to your needs category can be harder. Consider this a big win if you are spending under 50% of your net income on your needs. But the answer is not to suddenly go buy a new house or a car. Instead, take the excess and start applying it to your savings. If you spend over 50% here, you must think carefully about the changes you can make to your lifestyle. 

Here are the next steps to take:

  • Re-evaluate your needs - Take a closer look at your essential expenses and see if there are any areas where you can cut back. For example, you may save money on groceries by meal planning, shopping at a discount grocer, or purchasing generic brands instead of name brands.
  • Look for ways to reduce fixed expenses - Fixed expenses like rent or mortgage payments can be more challenging. Still, in some cases, you can find ways to lower your bills by negotiating with your landlord or refinancing your mortgage.
  • Increase your income - If you're having trouble making ends meet, you may need to look for ways to increase your income. This could mean asking for a raise at work, taking on a side job, or pursuing additional education or training to qualify for a higher-paying job.
  • Consider downsizing - While this might need to be a last resort, the truth is that if your essential expenses are still too high, you may want to consider downsizing your living situation, whether that means moving to a smaller apartment or selling your home and purchasing something more affordable.

Seek help if needed - If you're having difficulty managing your finances or making ends meet, resources are available to help. Consider speaking with a financial advisor, credit counselor, or other professionals who can provide guidance and support.

4. Get your budget documented 

Now that you know where you spend your money, how much you are spending in each of the categories of the 50/20/30 system, and what changes you need to make, it’s time to put your finances onto paper (literally or figuratively). This means developing a system that works for you where you can document your monthly income and compare it against your monthly expenses. 

Many families create spreadsheets that allow them to track their monthly expenses while creating a history of those same expenses. This makes it easier to determine averages on certain expenses, especially those that might fluctuate, such as your utility bills. Our favorite tools include’s Make a Budget worksheet, Microsoft Excel, Vertex42, and PocketGuard. As always, and above all else, the key is to develop a tool that works best for you. 

A family creating a budget for themselves

Creating a family budget is a must to protect your family’s financial future

Though it might take a little time to get started, consider creating a family budget as one of your priorities. The process can help improve communication amongst family members while managing expectations on what you can or can’t spend your money on. Tracking where your money goes and getting ahead of overspending can save time, stress, and even heartache! But most importantly, creating a family budget is the best way to help you achieve your financial goals.

*The content on this page provides general consumer information or tips. It is not financial advice or guidance. Each person’s circumstances are unique. The Cash Store may update this information periodically. This information may also include links or references to third-party resources or content. We do not endorse the third-party or guarantee the accuracy of this third-party information. There may be other resources that also serve your needs. 

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