How to Create a Family Budget: A Step-by-Step Guide

Do you ever feel like your family's money just disappears? It seems like you barely get to enjoy your salary because it's all gone within a few days. Expenses keep piling up, one after another, to the point where you're always stressed over your financial situation. Well, maybe a family budget could help.

Being an adult with a family comes with a lot of financial responsibilities. You need a bigger house, which means a higher mortgage or rent. The grocery list gets longer, and utility bills increase. And if you have children, there are additional expenses like childcare and extracurriculars to consider.

That's why creating a family budget can come in handy. By tracking every expense, big or small, a budget gives you a strong sense of where your money goes, and more control over your money overall. It can also help you pay off debt, save money, and achieve your financial goals. 

For those who have never budgeted before, it might seem a little complex at first, but it's all about adaptation and discipline—and our easy how-tos. To guide you through this process, we've put together a step-by-step guide on how to create a family budget from scratch.

What is a family budget?

A family budget is a plan you make for managing your household income. It outlines how much money you'll spend and how much you aim to save over a period of time. Typically, a family budget includes expenses that are relevant to every family member, like rent and utilities, as well as those covered by the breadwinner's income, such as childcare or extracurricular activities.

What are the three types of family budgets?

There are many different types of family budget out there, but the three most common are: 

• 50/30/20 budget: 50% of your income goes to necessities, 30% is destined to fun, and 20% is for savings.

• Zero-sum budget: Your income minus expenses should equal zero—not because you've spent it all, but because every cent is allocated to some purpose.

• Envelope budget: You set aside a specific amount of cash for envelopes labeled with different categories such as rent, groceries, and education. You do this periodically, and at the end of that period, you'll calculate how much was spent and saved in each category. 

“You may want to budget based on how you get paid—weekly or bi-weekly—or based on how you pay your major expenses, like monthly,” says Emily Hickox, financial educator and coach, and founder of Budget Through Life.

How to create a family budget in 6 steps

Now that we've covered what a family budget is and its different types, you're probably wondering, “OK, but how can I make a family budget?” At first, family budgeting requires a lot of communication and planning—but once you're set, you'll just need to follow through and make some adjustments here and there. 

1. Define your family budget goals

The first step in creating a family budget is figuring out your goals. Perhaps you need to get out of debt and cut back on expenses, or you might want to save for a family vacation, a new car, or a down payment on a bigger house. “Once you have a focus for the budget, you can start thinking about what line items you will include,“ Hickox says. 

2. Calculate your income and total expenses

To understand your household spending, you need to track both your income and all of your expenses. Start by adding up your salary and any other sources of income you might have, like freelance work or a side hustle. 

If you have a working partner, remember to include their income as well. It's important to know how much money your family makes and spends as a whole. If your income varies regularly, use the lowest amount as your baseline.

Looking to earn more money? This might help: 10 Passive Income Ideas For You

Next, calculate how much you're spending. Start with fixed expenses such as rent or mortgage, internet, and health insurance. Then, add in the variable ones, like gas, groceries, and credit card bills. Finally, subtract the total expenses from your income to see how much you have left. This will give you a clear picture of where your family currently stands financially.

“Sit down and identify what the individual expenses are for each family member” says Megan Hughes, managing director, family office services at BOK Financial. “Then ensure that the budget you create is attainable and realistic.” (More on that next.)

3. Fix a realistic budget for monthly expenses

How do you know what a “need” is? “Identify what costs you need to cover to make sure the family can survive,” Hickox says. Some examples of necessities include housing, food, water, and electricity. (“Wants,” on the other hand, include paying for five different streaming services or going to the most expensive gym in the city—in other words, treats you can live without if needed.)

“The next most important expenses to plan for are any debt payments that you have a legal obligation to pay such as a car loan,” Hickox says. “The third group of expenses to think about is what you need for the family to function at school or work. This might include transportation and clothing.” 

4. Determine what expenses you can cut 

Calculating your expenses will show you what's weighing most on your income, aside from your basic necessities. Maybe you're ordering too much takeout, picking the most expensive brands at the grocery store, or overusing your credit card.

Take some time to identify which expenses can be reduced or even completely cut off. For example, subscriptions that no one in the house really cares about or a gym membership you stopped using regularly after swearing you'd be more active. “Once your family’s essential expenses are laid out, your budget will quickly start to take shape,” Hickox says.

5. Set an attainable amount for emergencies

Make sure to always have an emergency fund. “Every family budget should include a ‘savings’ component for when unexpected expenses arise,” Hughes says. Having this money set aside will help you cover any unexpected bills without having to use a credit card or go into debt. 

Experts recommend aiming to allocate 20% of your income to a savings account. However, since every family has different financial realities, there's no right or wrong amount. Set an attainable saving goal for your family that's compatible with your current economic situation. As it improves, you can gradually start to save more money.

5. Choose your preferred budgeting method

To stay on top of your expenses, it's important to record them somewhere. Some prefer spreadsheets, while others find budget apps more convenient. Choose the method that works best for you and your family—in case you're going to share the responsibility of tracking expenses with other family members.

Spreadsheets offer the advantage of automated calculations through formulas. Plus, they're highly customizable, which encourages you to be more hands-on with the family budget. “A spreadsheet connects you more to your money,” Hickox says. “It gives you the flexibility to budget the way that makes the most sense for your family, and also forces you to learn how to categorize and manage your expenses, resulting in a deeper connection to your financial situation.” 

Budget apps also make calculations for you and usually come with some preset options. But not all of them allow multiple users, so one person might have to be in charge of keeping it updated. ”Younger generations likely would find apps appealing. However, as long as the information is there and tracked, how it is done is a personal choice,” Hughes says.

6. Track and record family expenses daily 

Yes, you should track your family expenses daily. Every trip to the grocery store or the gas station, every new battery you buy for the remote control, or a new light bulb for the bathroom—literally everything that is part of the household spending should be recorded in the spreadsheet or app.

If taking notes of expenses daily isn't realistic or simply drains you, try this method: throughout the week, save your receipts in a folder. At the end of the week, sit down and calculate how much you've spent, then add it to the family budget app or spreadsheet.

Bonus family budget tips

Before you go, here are some extra budgeting tips for families. These aren't mandatory steps, but things you can do to make the process of saving money and spending smartly easier for everyone involved:

Some expenses should be personal

There are a lot of family types out there. Some talk openly about everything, others don't. If yours falls into the second category, consider taking some expenses out of the family budget and keeping them only in your personal budget. 

If certain expenses are more related to your or your partner's personal leisure, they can also be separated from the family budget. “For example, some families might include travel on their household budget while others may decide that travel is on their personal budget,” Hughes says.

Include the kids in process, but with caution

“Creating a budget that helps a family reach its financial goals can be fun, educational and motivating,” Hickox says. “However, ensure that what’s included is age appropriate and understandable to younger members of the family.”

“Not all expenses might be ones you want children to worry or know about, so you may choose to exclude those and keep them only in your personal budget,” she says. “For example, a child might be overwhelmed and feel guilty if they see that the cost of their extracurricular activities is more than their parent’s car payment. Teaching children the value of their activities is great, as long as it’s presented in a healthy way.” 

Remember to set aside money for leisure

Of course, saving money and paying off debt should be a priority. But it's also important to set aside some funds for leisure, even if it's just a small amount of money left after covering bills and savings accounts. Simple things like eating out once in a while or going to the movies can do your mental health great favors and make the budgeting process more enjoyable.

Have conversations to align expectations

Unexpected events happen all the time, and even the most financially organized families can exceed their budget at some point. That's why it's important to sit down with your family to have an honest chat about expectations and plans. 

“Discuss in advance what happens if you realize you are over budget—do you need to revise the budget? Do you need to have a critical spending conversation with one or more of the family members? Communication is key when creating a realistic family budget,” Hughes says.  

Here's a family budget template for you

A family budget is personal and may vary according to the necessities of each family. However, there are some categories that are likely to appear in every budget, regardless of family size or type. “This would include your mortgage or rent payment and basic utilities like electricity and water,” Hickox says.

Looking for a sample? Download our family budget template. It's a spreadsheet that helps you figure out how much you're spending and saving monthly and annually. It breaks down your budget so you can see where your money's going. Just make a copy to your drive and personalize it based on your family size and specific needs. 

For instance, if you're creating a budget for a family of four, including two adults and two college kids, you'd likely need to include education and transportation costs in your regular expenses. But if you're creating a budget for a family of five, with two adults, two kids, and a pet, you may also need to budget for veterinary bills and childcare.