分类： Save Money

Creating a family budget should be a fun time for the family where couples meet together before the beginning of each month

I refer to family budget here to those families who have kids staying home with them

When me and my wife started monitoring our spending plan during different stages of our lives

Do you know that the term spending plan is synonym to the word budget

If you feel the word “budget” brings a feeling of complexity, replace it with the term spending plan

We noticed a significant changes in our budget when we were DINK which stands for Dual Income No Kids

Compared to our situation of 2 boys with 20 months age difference between them

Every stage you go through with your child requires different spending plan

Also every stage has its significant expenses like infant and part of toddler’s stage require buying diapers and certain type of baby food like formula

And when they go to the daycare, you pay significant amount where you have to plan for it properly

Anyway, I will go through all the steps required to build a budget and I will start with

How to start a family budget

Actually I highly recommend all couples to agree on creating their family budget together even before having kids

This kind of family budget is simple with less items so practice creating one and more to it with your kids at different stages of their lives

1- Choose your budgeting tool, paper or electronically

Although I am a big fan to anything that makes my life easy

But I highly recommend to start using your budget on paper first

You need a sheet of paper and simple calculator

When you start your first budget on paper

You need to calculate the percentage of each of your income and expenses compared to your total income

After you complete your first budget on paper

You can start copying the numbers on excel sheet to get use to the electronic copy

I made it easy for you to use a ready made free printable budget in PDF

Click to download for free from my resources page

But if you want more flexibility to add/edit any budget items according to your taste

You can download the budget word document and the editable budget in excel sheet for free

For complete flexibility to modify and add any new expense

Click to download for free from my resources page

2- Collect all of your bank and credit cards statements

For those families who think it is a challenging and hard task

It is a little bit when you first create your initial budget

Later on you have a ready process that takes less than 10 minutes of your time before the beginning of the month

But first you have to collect your bank and credit cards statements for the last 3 – 6 months

Don’t be deceived by creating your first budget based on values from one month only

You have to make sure you have so many months of previous expenses to make a proper assessment based on realistic datado it one time and let it take whatever it takes and every consecutive months will be a piece of cake

3- Determine your fixed and variable expenses

This is a mandatory step

You have to determine what is fixed and what is variable when it comes to expenses

For those who don’t know the differences between them

Fixed expenses: any expense that cannot be controlled and lowered like Mortgage/Rent, Netflix, Cable, Cell phones..etc

You got the idea, of course you can change them but I mean it is feasible

Variable expenses: any expense that you completely have full control over them like groceries, clothes, discretionary expenses, dinning out

I have a free printable Expense tracker to download and start assessing your expenses

By the way, the real purpose of the free printable income expense tracker below is to determine if your income covers all of your expenses with deficit, surplus or almost zero balance

Click to download for free from my resources page

4- Determine your discretionary expenses to cut

Everyone has a discretionary items to splurge money on

It can be a hobby or your morning coffee

For myself, I know I am very week to resist buying chocolates – all different kind of chocolates

Also I am addicted to Starbucks coffee

Situation is different after having my 2 kids

I didn’t change completely but I always put my kids in my thoughts when thinking about any expenditures

Find out what expenses you can cut without even noticing that you sacrificed anything in your daily routine

5- Adjust your budget frequently

A family with growing kids makes your budget changes rapidly

One day you can add diapers in your spending and all of the sudden they go away

Always embrace this frequent changes and consider it a good opportunity to save the money you used to spend on any gone away expenses

For example, I used to pay for baby formulas more than $120 monthly

After I stopped spending money on baby formulas, I started saving a little bit of extra money into kids RESP – Registered Education Savings Plan

6- Working on paying off your debt as a priority

Nothing can beat the feeling of overcoming your debt

It is a feeling of joy as you are not slave anymore to sleepless nights

According to Dave Ramsey’s book Total Money Makeover where he put a new approach to pay your debt

He asks anyone who wants to pay debt to sort them in amounts from low to high regardless of interest rate and pay more into the lowest

By following this approach, you get a strong power of enthusiasm to continue fighting your debt as you see one debt is going away

Of course, there is an exception to this rule, if your debt is a government due taxes or any obligatory debt to pay

7- Think about all the family financial goals together

I always have this debate with my wife on how to distribute our annual tax refund between different investments

You have many savings for the future like saving for RRSP in Canada or IRA in US and saving for RESP in Canada or 529 plan in US

You have to compromise between saving for yourselves as a couple for retirement and saving for your kids’ future educations

8- Build your savings

Since educational saving in Canada for kids has a cap limit and the government match 20% of your contribution up to $2,500 so I always maximize it to get the maximum benefit

For the retirement saving, most companies match up to a certain percentage of what you contribute so always maximize your contributions

If you have the option to move any bonus to your retirement saving plan, I encourage you to do that because if you transfer your bonus to your retirement saving it will not be taxed so you add the full amount

What are the types of family budget

Deficit budget

Deficit budget when you find that your expenses are greater than your income and you are subtle to fall in debt

You will not notice it if you don’t build a monthly budget

I was once in this situation and I realized that after I managed to have a monthly budget

So how was the deficit managed without my checking account going negative

Simple answer, yes I was in deficit

But because extra income like tax refund and bonus come in during the year

Beside last 4 or 5 months of the year the take home pay is somehow higher due to finishing the deductible taxes on the first months of every year

My idea is you should manage to get out of deficit without replying on your bonus or tax refund

Surplus budget

Surplus budget occurs when you are able to cover all of your expenses and still have extra money that get accumulated in your checking account

This is not the right decision to keep your extra money sitting in your checking account

Neither deficit nor surplus with money in your checking account is right

If you are steadily having surplus then you should manage to increase your retirement contribution or educational saving plans for your kids

Balanced budget

This is the typical case where you learn from your monthly budget numbers and manage to make use of every dollar in your income

What is sample budget and how to use it

Sample budget is a budget from another household or family

You can use it to avoid common budgeting mistakes but you cannot rely on their numbers to apply it to your situation

Every family is different from others even if having the same number of kids and their ages even if they live in the same city

Also it is completely wrong to see how others spend their money and build decisions based on these spending habits

You can download for free the above blank family budget PDF to help you start with your own numbers

If you want to sum all numbers to get a proper percentage of each expense compared to the total income then you can download free the family budget sheet above

How to create a family budget on excel sheet

One of the best thing to save time for you and to make you fall in love with the concept of maintaining your family budget on a monthly basis is to use budget on excel sheet

I have discussed before on how to create a digital budget in spreadsheet, I recommend you to go and check it

I assume if you have panic from numbers just spend 5 minutes to get familiar with the steps I mentioned to create your own budget sheet and I guarantee you will definitely master it

Now your next step is to join my mailing list to stay up to date with budgeting, saving money and managing your finances

It is such a great feeling to create a spending plan for the upcoming month

A feeling that you are fully in charge and gaining control over your finances and future

As you are never worried about paying your bills and credit cards

Where you are capable of fully covering your payments especially your credit cards balance

I really feel sorry for those who believe building a family budget is complicated and not for them

Anybody can create a spending plan as long as he/she can use a calculator

I want you to continue reading below and see if you are still not able to create a spending plan for your household

Let me start with the following

What is a spending plan

When you create a spending plan, you specify a clear path for all the channels or expenses you want your income or take home pay money to go to

Instead of losing track and figure out that your take home pay money went to wrong channels or allocated more into undesired channels

Spending plan vs Budget

Spending plan is typically the same as budget

The reason I am using the term spending plan because I want you to love the concept of managing your household income

A lot of people don’t feel comfortable with the term budget as it brings a sense of deprivation, suffering and hard work

This actually reminds me of my son who refused to take the antibiotics as it is very bitter so I had to replace it with similar drug with delicious taste

So It doesn’t matter if you create a spending plan or a budget

What really matters the fact of overcoming the fears of its complexity

Once you start a speeding plan you would realize it is so simple

What are the benefits for creating a spending plan

Imagine having a genie monitoring where every dollar that comes out of your pocket go

He also stops you from overspending on something you could have controlled it earlier

And he cares about your future and keeps nagging for you to save money

That is the benefit of creating a spending plan

You want to monitor where your income is going to stop living paycheck to paycheck

And force you to save for retirement and to build an emergency fund

Also to act as a debt collector to pay your debt and save you on accumulated interests

Finally to keep you in control of your finances

What are the key concepts to consider before you create a spending plan

Be realistic when you create a spending plan that you can apply it to your family

Also be flexible to modify it when needed

There is nothing wrong if you admit you made a mistake and to correct it

Review your monthly spending plan before the start of each month as income and expenses change frequently and you need to adapt the new changes

But keep in mind the following key concepts when creating a spending plan

Income vs take-home pay

Income is not always the net pay, it is most likely the gross income before taxes

E.g. if your income is $60,000 per year

It doesn’t mean you will get paid $5,000 a month or in other word you divide your income by 26 biweekly checks assuming you get paid biweekly

That’s why you have to create a spending plan based on your take home pay which reflects what you earn after taxes

In our previous $60,000 income if we apply your provincial tax or state tax then your take home pay can be around $45,000

This is what you use when creating a spending plan

Tracking your spending

When you first start your spending plan you will be in a hit or miss position

You estimate an amount for specific expense and you get different spending result either deficit or surplus

You have to keep track of your daily spending for a month or two

Other alternative if you can go through all your credit cards and analyze your spending into different categories

For example, if you find four or five separate spending related to grocery

You sum them together and come up with an estimate amount for how much you plan to spend on grocery

What are the three types of expenses

Not all expenses are the same as you have fixed, flexible and discretionary

You have to know the difference between all of them

Fixed expenses

This is what you have to pay as is so it is the same amount every month

That’s why it is called fixed expenses like mortgage/rent, phone bill, internet subscription and cable

Flexible expenses also known as variable expenses

It is called flexible or variable expenses because you have full control over them

If you are diligent and educate yourself on how to save money on these types of expenses definitely you will get some money in your pocket

An example of a flexible expense is your spending on grocery

It is clear example on flexible expense which you can act smart to save money on grocery

Discretionary expenses

Your morning coffee or GYM membership is a clear example of discretionary expenses

What is discretionary for me can be essential for you so no judge here

Everyone of us has at some point few expenses that you can cut or replace them with cheaper ones

For example, in my post for 101 best ways to save money I saved almost easily $450 annually by replacing my cable subscription with an IPTV

What are the 6 steps to follow in the spending plan process

When creating a spending plan one of the key success is to analyze your numbers

Don’t worry if I use the word “analyze”

Because you will analyze without even knowing that you do that

You are going to subtract what you spend monthly from your earnings

You will start to get the sense of how to play around your expenses to maximize the Gain part and minimize the Loss part

Follow the below steps to be able to create a spending plan that take you out of debt

Add all your monthly expenses

One of the challenges for those who are creating a new spending plan is that they forget few expenses

This is normal, it happened to me but the good news is that once you finish adding all of your familiar expenses

You can review all methods of payments like debit and credit cards and see what else you can include

Add your household net income as known as take-home pay

Add all take home pay money on your spending plan even if you have seasonal earnings like tax refund

It will be always zero for all months except the month you file your tax return

Deduct all expenses from take-home pay

If you remember earlier the three types of expenses fixed, flexible and discretionary

You have to deduct all of your expenses from the take home pay

A smart idea is to deduct only all fixed expenses from take home pay

You need to know how much money left on your spending plan to manage

If you subtract $1,960 from $7,095 then you have $5,135

Keep in mind that this is just an example

In reality you have to add few fixed expenses like cell phone bills, internet and cable subscription

Lay down your financial goals or priorities

I always say it loud to come out of debt you have to save money

But how? When you create a spending plan you see all expenses

So you can make a wise decision to pay yourself first by deducting from your take home pay a certain amount every paycheck and transfer it to your saving

It doesn’t work any other way so you have to lay down your financial goals and priorities to figure out how to manage your expenses after saving money

Allocate money to savings and financial goals

Whatever you have a financial goals on mind like planning to buy a home and you plan to save the 20% down payment

There are already existing goals you have to pursue like building an emergency fund and saving 10% for your retirement

I mentioned the emergency fund before retirement saving on purpose

You cannot save for retirement while missing emergency fund because when you start working on your spending plan you will encounter all of the sudden bills you have to pay

You have to pay these urgent bills and not get distracted from your retirement saving

But if you pay it from your emergency fund you can keep saving for retirement on a monthly basis without interruption

Review your spending plan against savings and financial goals

Always keep on reviewing your spending plan against your savings

This is an ongoing process that keeps on changing and you have to adapt for these changes

For example, one month you can get something urgent that requires to use the emergency fund

You start again to build it up or you can get 3 paychecks in one month

Yes this happens twice a year so you can add extra buffer to your emergency fund

Typically your emergency fund should cover 3 to 6 months of all of your expenses

Spending plan worksheet and how to use it

I discussed before how to create a digital spreadsheet budget

I showed you how to use a ready made spreadsheet spending plan and how to create your own from scratch

This spending plan shown below

I created for you to use before beginning of any month

The best feature I love about this spending plan spreadsheet is that it calculates any amount as a percentage according to the overall total income

Even individual income itself is calculated as a percentage to the overall total income

You can skip the estimated column if you feel it is a redundant work but keep in mind to ignore the negative values under difference column

Click to download for free from my products page

Don’t forget your password to edit data is 0000

To get the full flexibility to modify it to suit more of your needs

You can download the budget word document and the editable budget in excel sheet for $2

When comparing spending plan spreadsheet vs paper spending plan

I am not against the spending plan spreadsheet

I always stand anything than makes my life more convenient

But using a paper spending plan is one of the things that keeps you focused on your financial goals

Just hang it on your desk or your fridge and look at it every now and then

This will stir your brain to think about several ways to save money for your family

That’s why I still use a paper spending plan after finishing my assessment on the original spending plan spreadsheet

That’s why I encourage you to download this free printable spending plan

Click to download for free from my products page

Looking for extra flexibility to edit your spending plan in Word document

What about if you download both Word and Excel sheet together for

You can download the budget word document and the editable budget in excel sheet for $2

I hope I was able to help you overcome any doubt that made you believe creating a spending plan something complicated and not for you

According to creditcards.com Americans accumulated $1.0645 trillion in April 2019 on credit cards

That’s because they don’t create a spending plan to tell them where their earnings should go

Now after you are done with your spending plan what if you are living paycheck to paycheck

Or still struggling to get your spouse to commit to your spending plan

Knowing how to build emergency fund, everybody learns this hard lesson by missing the emergency fund when he/she gets into trouble paying for unexpected last minute bill

This personally happened to me in 2018 when I had to fix my car urgently

First, I consider myself clever when it comes to buying all of my used cars

Although I choose a perfect Japanese cars but the inevitable happened

I had to change completely my entire rusted muffler

In fact, I couldn’t defer it and since I went to my trusted mechanic, I had to change few other things that were about to be defected soon

I paid around $700 cash as my mechanic accepts cash and checks only

I learned from this lesson and I started to build emergency fund immediately

It is a gut-wrenching situation, I don’t want you to get into this situation

So let me talk about how to build emergency fund in less than 30 days

What is emergency fund

In very simple words, an emergency fund is a personal money you set aside for a very last minute payment which you didn’t handle when you created your monthly budget

Examples of unexpected expenses can be an urgent car repair, medical or dental bill not covered by your medical insurance, urgent renovation to your home, God forbids if you get laid off

Finally saving for emergency fund for something completely would never cross your mind like COVID-19

What is an emergency fund money used for

Don’t give yourself an excuse to use your emergency fund to pay for holiday parties or gifts

You know Thanksgiving and Christmas come to you same time every year

They are not an emergency anymore so you plan ahead for holiday seasons

Build emergency fund to cover the unexpected events where you have no control of predicting them at all

A question here to you, if after a very strong wind you start seeing few shingles from your roof blew away

Next year when most of your shingles start falling off, do you consider replacing your roof from your emergency fund

I believe you should not as you were already aware of the incident long time ago

Ask yourself the following 3 questions before you use your emergency fund

1. Is it unexpected?
2. Is it urgent?
3. Is it necessary?

If you answer Yes to all the above then you can use the emergency fund money

Do I really need an emergency fund

Let me ask you this question below and be honest to yourself

Do you think you can complete a full year without facing any unexpected expenses?

I would say it is almost impossible to complete 6 months without having last minute bills and unexpected expenses

You have to embrace the inevitable nature of life

How much money should you save in your emergency fund

According to some financial planners, you need to save from 3 to 6 months of all your household expenses including the mortgage/rent payment

If you have a realistic budget, you would easily know all of your running expenses for recent months

Don’t get discouraged, start today by saving as little as $100 as a start up step

According to Dave Ramsey 7 baby steps to build emergency fund

Step 1 is to save a minimum of $1,000 to protect you from borrowing money while you tackle step 2 for paying all of your debts

Is $1,000 enough for emergency fund

According to Dave Ramsey’s book the Total Money Makeover

This is step 1 which I described above

Dave Ramsey calls it the baby emergency fund plan saving $1,000 as a first step

For those who have credit cards debts or other loans to pay saving $1,000 for the emergency fund is more than enough to handle any unexpected emergencies like a repair for your car or urgent medical bill

What Is a Fully Funded Emergency Fund

I discussed above step 1 – saving the first $1,000 then step 2 – paying all of your debts

To establish what is called a fully funded emergency fund, both income household should save 3 to 6 months for their household expenses

I say 3 to 6 months of expenses, I didn’t say income

Income is what you bring from your job while expenses are what you pay as essential expenses to keep your house running

Is savings the same as emergency fund

Are you confused between savings for retirement or investment and saving for an emergency fund

If you have no previous savings, start saving the money for the emergency fund first

Keep in mind that you are saving for an emergency fund to cover sudden incidents

On the other hand, you don’t save for your retirement with a plan to break it for unexpected expenses

You should save for retirement in long term investment saving plan

How to build emergency fund with no money

Now assume you are excited to build emergency fund immediately

Perhaps because I convinced you with the idea of building a contingency plan to face the unexpected incidents in life

Or you started freaking out in time of recession and you hear stories from friends or family members about recent layoffs

Whatever the reason behind your decision to build emergency fund

1) Start by opening a saving account with high interest rate and deposit $1 into it

Make a promise not to touch it in unnecessary expenses

You know the rules and I assume you are adult enough

Dave Ramsey ‘s Total Money Makeover suggested to open a saving account in different bank other than the one you do your daily banking with

He went so far with stories of people who managed to hide the money in a frame with a sealed glass where you have to crash it to get the money

2) Begin with the baby emergency fund plan

What I mean by baby is to deposit $500 as soon as possible

I would say to complete depositing your first $500 in your first week of starting your emergency fund

3) Automate saving into your emergency fund

This step works perfect for people who build emergency fund within their same bank along with their checking account

You setup an automatic transfer for small amount weekly or biweekly

Something that really builds up over time

4) Start multiple source of funding your emergency fund

Everyone of us can really liquidate $500 worth of household products or unused electronics into cash

• You can arrange a garage sales and take all of its profit to your emergency fund
• You can sell so many things around your home using Facebook Marketplace, Craigslist or even eBay
• Cut your expenses especially for discretionary items like the morning Coffee

I know you can mimic the purchase of you Coffee to every other day

To be fair, I am a Coffee addict so I know how we all spend on discretionary things

Since I noticed a surge in spending money on morning Coffee so I limited it to twice a week maximum

Follow the 101 money saving ways and check what you can save instantly and take its money to the emergency fund saving account

How long does it take to save for an emergency money

There is no specific timeline for you to take to complete saving for an emergency fund

To expedite the process of saving for an emergency fund, consider the following to help you focus on dedicating money to your emergency fund saving account

1. Imagine you will be laid off in 3 months and act accordingly
2. What about discovering a critical illness not covered by your medical insurance
3. Imagine a severe dental pain then you discover that your dental plan does not cover that

I am not a jinx, on the other hand I am always positive but we as human beings don’t act to something unless we believe that it is going to happen

Think about COVID-19, it would have been quarantined if we had taken good measures when we noticed the first symptoms back in December, 2019 in Wuhan, China

Where does Dave Ramsey recommend to save your emergency money

For those of you who don’t know who is Dave Ramsey

Well, Dave Ramsey is an American personal money management expert and a popular radio show speaker with a multi million dollar company he owns and operates

He measures his success by the number of lives he very last minute managed to change and saved them out of debts

Dave Ramsey suggested where to keep an emergency fund

You should in invest your money in a money market account also called money market deposit account

The latter means any account that pays you the highest interest when you deposit your money

You should not invest your money in any risk account that can go down in value even if it promises high profits or any account that charges you penalty when you take the money out early like CD which stands for Certificate of Deposit in US or GIC which stands for Guaranteed Investment Certificate in Canada

What does Dave Ramsey say about emergency money

Dave Ramsey considers the process to build emergency fund as one of the essential part in the 7 baby steps towards financial freedom

You need that safety net between you and lifedave ramsey describing the emergency fund

You need an emergency fund, an old-fashioned Grandma’s rainy day fundwell I should be positive but I am positive, sure it is going to rain one day

It is human nature to want it and want it now; it is also a sign of immaturity. Being willing to delay pleasure for a greater result is a sign of maturitydave ramsey’s quote to encourage PEOPLE to save money

Pray like it all depends on God, but work like it all depends on you.for those who believe why we need emergency fund if we reply on god

Final notes on saving for emergencies

Finally I hope you realized the importance of saving money in case of emergencies

Check if you know how to build your family budget, this would definitely help you to plan for an item reserved for an emergency fund

I cannot push you to save money unless you have a vision and plan for your future

All I can do is to provide you with an emergency fund tracker free printable

Click to download for free from my products page