Growing families are guaranteed to be met with growing expenses. As your children grow, everything gets more expensive. When children are younger, most parents will have to choose between living on one income or the steep cost of child care. As they age, add groceries, camps, sports, video games and tech such as mobile phones, and the costs can skyrocket. Whether you’re expecting your first child or raising several, you will have to learn to manage your money wisely in order to be able to meet the financial demands of a growing family.

The most effective way to manage and save money is through creating and sticking to a budget, but a recent study by US Bank shows that only 41% of Americans say they use a budget. This means there are a lot of families out there that most likely couldn’t tell you how they are spending their money. Why don’t more growing families budget their expenses? Well, the truth is that it takes work and commitment to create and adhere to a budget. For some, the process of setting up a budget can feel overwhelming. Still others may need a little more convincing that a budget will pay off – literally. If you’re still unsure you need to formally budget for your family, remember that budgeting helps you plan for how you will spend and save money so that you can meet your family’s needs and save for any wants. In short, it will ensure you have the brightest financial future you can provide for your family. Budgeting can also keep you from falling into credit card debt (or other debt), where finance charges can add up quickly. Growing families have ever-changing needs, and all should be as prepared as possible for the unexpected or unfamiliar costs associated. From crib to college, your financial needs and goals will be best served with a solid plan that puts you in control of your money. The good news is that there is no lack of financial tools available to help you set up your budget and stick to it. While a handy pen and paper will definitely do the trick, ongoing use of a financial software such as Quicken or Mint can greatly reduce the work involved in some parts of the budgeting process and make it easier to stay on track for the long haul. Most tools even sync with your online bank and credit accounts and can intuitively classify many expenses for you.

While creating a budget for a growing family can be a big task, there are four basic steps you can follow to get on the fast track to fantastic money management:

1. Identify Income and Spending

The first step in moving forward is to take stock of all current income and expenses. Gather everything that shows money going in or out. This includes your pay check stubs or earning statements, receipts, bills and bank statements. From this, determine exactly how much you make. Do you or your partner take home any other income besides your after-tax salary(ies)? Once you have this number, you can move on to the expenses – the tough part! Remember, if you don’t know where you’re spending your money, it will be very difficult to save for those braces or that retirement RV. It’s recommended to review your bank statements and credit statements and any additional receipts from the last 6 months to see exactly where you’ve spent your money. If you’re using financial software, you can often import your bank transactions directly into the program, which can save a lot of time and headache. Once you have all the data, you need to categorize your expenses according to how you want to track them. You can be as general or specific as you want on creating categories for your expenses, but when you have kids or are budgeting for the arrival of a little one, you may want to break the expenses down enough so that you can identify specific “kid” costs like child care and kids’ activities.

Here are some sample expense categories:

  • Mortgage/Rent
  • Electricity
  • Water
  • Groceries
  • Kids’ activity fees (soccer, gymnastics, karate)
  • Recurring medical expenses (medications, payments on braces)
  • Car payment
  • Car Insurance
  • Homeowner’s Insurance
  • Internet
  • Cell phone
  • Dining out

Feel free to add any category that will help you identify where you’ve been spending your money. With all your expenses categorized, you can now get started with tracking your expenses.

2. Track Your Expenses

Now that you have some historical data, it’s time to get in the habit of moving forward tracking all of your spending on (preferably) a daily basis. Again, you can go old school pen and paper or sync up your bank/credit cards to your financial software and categorize as the charges come in. What’s important is that you include EVERYTHING – even that soda you picked up when you got gas. Tracking expenses to get to spending goals is like tracking calories to lose weight. It doesn’t work as well if you cheat! Either take some time at the end of the day to write down all your expenditures or to classify debits in your financial software app or take some time in the morning to go over the previous day, but you must make tracking and categorizing your expenses a top priority. Because a few dollars here for your son’s yearbook and a few dollars there for a drive-through coffee add up, it’s important to stick with the tracking daily so you’re not surprised as to where your money went by the end of the week. You’ll want to use this opportunity to make sure both you and your partner are checking in with each other as you spend money. This is a great way to communicate regularly about the state of your finances and spending.

You’ll want to continue tracking expenses for a couple of months in order to get an idea of how certain items might fluctuate – like groceries or auto expenses. As you’re now recording your ongoing expenses, you’ll be able to watch the amounts by category and get a true picture of where you’re spending your money. It won’t matter if you have a budget if you don’t watch what you’re tracking. At this point, you should be able to average out your monthly expenses in each category and set your budget amounts. If you’re unhappy with what you see, well, it’s time to take charge of your family’s financial future with a good, hard look at your goals.

3. Determine Your Goals

You’ve done some hard work setting yourself up for success with money management! Now that you know where your spending has been, it’s time to determine where you want it to go. A family with children will most likely place education as a big priority for the long term. Another goal you may have is to upgrade to a more family friendly vehicle. Perhaps you want to be able to take a special family vacation or to send the kids to a summer camp. It’s time to start prioritizing, but you must be realistic. If you have several short and long term goals, you may have to avoid splurging on an item like an expensive new vehicle and choose a late-model, used option instead. And remember, if you’re in debt, you need to make paying down debt a priority. Now that you’re categorizing expenses, that “interest” line item will not look pretty if you’ve run up credit cards and/or loan accounts.

You need to put your goals down in writing and/or add them to your financial software as well.

As time goes by, your family goals will change – along with your income and circumstances, in many cases. While you don’t want to be making changes to your budget on a monthly basis (you have to stick to something!), you will need to reevaluate your goals from time to time. Life happens. Any number of situations could play out forcing you to change course. Here are some instances when you should sit down to rethink your goals:

  • On an annual schedule
  • After the birth of a child
  • If you or your partner lose a job
  • If you or your partner get a promotion or better paying job
  • If a family member has a health crisis
  • When a child is able to drive (never mind the extra car – insuring a 16-year-old is expensive!)
  • When a child graduates high school (whether moving off to college, trade school or entering the workforce)
  • If you pay off credit cards or other loan accounts

As your goals evolve with your family’s needs and circumstances, you will also need to change your spending habits to match. The beauty of this process is that you know exactly where your money is going and are able to assess where you need to move dollars within your budget in order to meet your goals. This takes us to our last step in setting up a household budget – making the dollars work with your sense!

4. Adjust Your Spending

Making adjustments to your spending is the final step in sticking to your budget and ensuring the healthiest of financial outcomes for your family. You may be running into a deficit problem – where you’re spending more than you’re bringing in. Or perhaps you’re not able to put money into savings with your current spending habits. This is where the rubber meets the road. Many people get motivated to make changes just from seeing where exactly they’re spending their money month in, month out. However, old habits die hard and you may need to get creative in making proactive spending and saving decisions that will be most favorable for your family’s long-term financial well-being. If it’s time for that next automobile, set a firm budget amount for the vehicle and do some research. You might be surprised what you can find on a limited budget. If you know you’re about to need to put a child in braces, it might not be time for that Disney World vacation. You could plan something more economical like a camping trip or nearby weekend getaway instead. You might need to cut down on eating out in order to meet your monthly education and retirement savings goals. Take a look at your spending history by category and cut down on unplanned or unnecessary purchases in order to stay on track for your goals. You’ll need to continually adjust spending as your family grows in size and age. Perhaps you can save the Disney World trip for when your last child is out of daycare and you no longer have that hefty expense. The important thing is that you have control over your finances now! Since you know where your money goes, you can decide how much of it goes where and make spending adjustments accordingly.

When you diet, the process doesn’t end when you drop the weight. You still have to watch what you eat and how much you exercise so that you can keep the weight off. You will need to continue the process of tracking and categorizing expenses, evaluating your goals and adjusting your spending in order to keep up with the changing needs of your family’s finances.

Good luck and happy budgeting!

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