Family budget: how to plan and distribute it?

After starting a family, settling down with your partner, and starting to create a joint household, financial issues become inevitable. Rent or home loan, taxes, food, various household items, major new purchases - this is what everyone faces. The question often arises of how to share family expenses, and how to create an efficient method that helps not only perfectly plan the joint contribution to the family household, but also save for the realization of bigger dreams. When such needs arise, a joint family budget begins to be created.

 

What is a family budget?

Although financial literacy in Lithuania has grown significantly today, compared to the situation a couple of decades ago, unfortunately, not everyone knows what a family budget is yet. The family budget is the share of money earned by each member of the household, intended to meet the general needs of the family. Each family has a unique family budget model, which depends on the composition of the family, the amount of wages of each member, the joint and separate assets of family members, personal characteristics, and even relationships. In some families, the largest part of the budget is the contribution of the person who earns more, in others, the finances are allocated in equal parts. Sometimes family members have one joint account dedicated specifically to common family expenses, sometimes part of the money is transferred to another partner or family member who pays for purchases from his account, and sometimes people living in the same household simply share common expenses - one buys food and household goods, the other pays taxes and takes care of entertainment or the like.

 

Family budget planning

Family budget planning is a responsible activity that determines the overall well-being of the family. It is very important to involve everyone in budget planning, even the smallest ones: this way you will teach and encourage them to understand the value of money, educate them on how to wisely distribute and use the available money, how to set priorities, plan and save. Family budget planning is, first of all, unthinkable without clear financial goals.

 

How to set family financial goals?

Financial goals are the family's shared financial aspirations. When planning a family budget, it is very important to set financial priorities and both short-term and long-term goals. Certain larger purchases, such as living room furniture, can also become them; preparation for the birth of a child; saving for repairs, a car, a home loan, children's education, vacation or simply saving for contingencies, to ensure the family's financial security, in other words, to create a financial cushion. Setting financial priorities and both short-term and long-term goals makes it much easier to properly allocate the family budget.

 

Family income and expenses

When setting priorities and achieving financial goals, it is very important to properly assess the family's income and expenses. Accounting of family income and expenses allows a clear assessment of the current situation, proper income distribution, and purposeful pursuit of goals. The common family budget can be supplemented by salaries of family members, maternity or paternity benefits, child money, passive income from family investments, etc. Knowing the size of the family budget makes it much easier to allocate it to the expenses that fall on it. Unfortunately, there are always many more types of expenses than income, so they can be divided into smaller groups:

1. loans (housing, car, consumer loans);
2. communal services (water, electricity, heating, etc.);
3. subscription fees (mobile communication, television, internet, etc. services);
4. food expenses (takeaway food and cafeteria lunch bills should be included in a separate category);
5. hygiene and household goods (detergents, shampoos, detergents, cleaners, detergents, etc.);
6. transport (public transport, expenses for own car, fuel, etc.);
7. expenses for children (diapers, formulas, clubs, tutors, daily allowances, etc.);
8. health goods and services (expenses for treatment, dental repairs, medicines, vitamins, supplements, etc.);
9. clothing, footwear;
10. pet care (food, hygiene products, expenses for training, veterinary services, etc.);
11. entertainment and beauty (cinema, theater, spa, hairdressers, beauty salon services, etc.);
12. small expenses (home decorations and other unnecessary expenses);
13. saving and investing.

 

Calculating the family budget

You can calculate and draw up your family budget yourself. Calculation and distribution of the family budget can be done simply on a sheet, in a notebook, on a computer, or by downloading ready-made special family budget templates from the Internet. However, if you think this task is too complicated for you, there is more than one family budget calculator that helps you divide income and expenses into appropriate parts. There is simply no single formula for calculating and distributing the family budget that is suitable for all households. How many 

Each family's needs and goals are different, so sometimes the best way to distribute the family budget is to talk and analyze the needs of the family, apply the rules made by financial management experts, and adapt them to your lifestyle and needs. However, some popular budget allocation rules can make family budget allocation easier.

 

Rules for dividing the family budget

Did you know that several budgeting rules help you manage your family finances better? One of them is the 50-30-20 rule. Based on the budget allocation formula recommended by financial management experts, 50 percent of the family budget should be allocated to necessary expenses, 30 percent to other, unnecessary expenses, and 20 percent. for savings.

Another model recommended by experts is the 6-jar system. Based on it, all finances are divided into 6 different parts. The first part consists of approximately 10 percent. of family income allocated to investment. The second, also 10 percent. the constituent part is educational, intended for seminars, training, and development. The third, 10 percent part of expenses is for entertainment. It is recommended to put 55 percent of the budget in the fourth jar and allocate it to necessary daily expenses. The fifth part is 10 percent for long-term purchases. The last, sixth part, which is 5 percent of the family budget, should be devoted to good works and charity.

 

An example of a family budget

Proper distribution of the family budget guarantees security and peace of mind. To properly manage it, it is necessary to keep an accounting of the family's income and expenses for each month, which helps to calculate and distribute income and expenses better and easier, to set priorities, to distinguish necessary from unnecessary expenses, to create long-term or short-term financial plans. Analyzing your family's monthly income and expenses makes it much easier to make the most suitable plans for you. For example, family A in your family budget management applies the 50-30-20 rule by adding 2,000 euros to the family budget every month. 50 percent, i.e. i.e. They allocate 1,000 euros every month only to cover the most necessary expenses: food, taxes, and car leasing. 30 percent, i.e. i.e. They spend 600 euros every month on other, less important expenses: clothes, entertainment. Family A invests approximately 400 euros in real estate projects every month and thus earns up to 12 percent interest! In addition, the invested money is protected from the effects of inflation, so it does not depreciate. Your family budget distribution doesn't have to be the same! However, we do not doubt that even if you earn less, you can save!

 

How to effectively save money when planning a family budget?

Saving is one of the components of the family budget. Families often save for larger purchases, such as their own home, a car, home renovation, or new furniture. You can save money in various ways: by reducing the amount of money allocated to unnecessary expenses, by giving up luxury goods, by creating an additional source of income. A few, at first glance, very simple tricks can help you save:

setting a savings goal (saving is much easier when we know where the saved money will go);

tracking expenses (after analyzing unnecessary expenses, you can quickly see where you can save without compromising the quality of life);

Avoid impulsive purchases (thinking in advance and making a shopping list reduces the chance of buying something that is not necessary).

These are just a few ways to make saving easier. You can read more rules on how to do this in our article "15 effective ways to save money".

 

Where to invest the saved money?

Those who want to increase their capital and create passive income often choose to invest their savings. Investing is not only an opportunity to create an additional source of income, but also to protect money from inflation. To employ your savings, you can choose both long-term and short-term investments.

 

Investing in real estate

Investing in real estate projects is one of the safest ways to earn money without leaving your home. These are usually short-term, but profitable investments. Investing in real estate projects is possible from as little as one hundred euros, which means that you do not need to save for years to be able to earn from your savings!

 

Family financial discipline

To achieve financial stability in the family, it is not enough to make a family budget plan. Implementation of the plan and financial discipline become a much more important part. Only by consistently working with it and constantly cultivating financial discipline can you achieve truly amazing results: get rid of debts that have been weighing you down for years, save, create an additional source of passive income, and realize big family dreams. Consistency and directionality are important even in the smallest details. It is very important to discuss the action plan together with the whole family, stick to it with discipline, and encourage each other. Do not forget that financial discipline is not limiting or giving up things you enjoy - it is a conscious distribution of finances that ensures the financial well-being and stability of the whole family.