How to create a family budget - Times Money Mentor (2024)

Whether you are struggling to make ends meet, wanting to pay off debt or saving for the future, drawing up a family budget is the best way to manage your finances and achieve your goals quicker.

Below we explain how to create a spending plan and stick to it.

This article covers:

• How to make a household budget?
• How to cut outgoings?
• How to make a spending that you can stick to?
• How to manage unexpected bills?
• How to save for the future?
• How to cut costs to clear debt?

Make a household budget

You don’t have to be a personal finance whizz to create a monthly household budget. All you need to do is figure out what you have coming in and going out. You can use our free budgeting tool or download a budgeting app or download a to help you.

To help you get started, follow the below tips.

Add up your monthly household income

Work out how much you have coming in month to month per adult. This could include:

• Your salary
• Other sources of income, perhaps rent from a buy-to-let property
• Any benefits you claim, such as child benefit

Be as accurate as possible, which can be difficult if you don’t have a fixed monthly income, e.g. if you are self-employed. Instead, take an average of your earnings over the past six or 12 months.

Work out your monthly expenses

Take a close look at how much you spend, taking into account the below:

• Get together all your current account and credit card statements from at least the past three months
• Note down all your monthly expenses including the bill payments, purchases and withdrawals on your bank statements and note which are fixed expenses and which are variable expenses.
• Split them into essential and non-essential spending:
  • essential = expenses related to living, such as medication, rent or mortgage, plus debt repayments and utility bills
  • non essential = make-up, gym memberships and Netflix
  • difference between your income and what you spend on essentials is your disposable income

If your total household net income is £7,000 per month, and your mortgage, bills, groceries and childcare costs come to £5,500 – you then have £1,500 left to play with each month.

Find out more about how much childcare costs, and what help there is out there for you.

Cut down expenses

Once you know how much is coming in and going out each month, the next step is to look at where you can save on your outgoings.

The average household expenditure is £572.60 a week, according to the Office for National Statistics (ONS), largely on “essentials” such as:

• utility bills
• commuting and transport
• food shopping
• repayments for student loans

But are we spending wisely, even on the essentials?

• Transport – average costs are £80.80, or 14%, of a typical family’s weekly spend. Could you cycle or walk more?
• Shop around – switching energy supplier and moving to a less expensive TV package or cheaper mobile deal could save hundreds of pounds a year. See here for more tips on lowering the cost of household bills.
• Expensive debt – If you have an overdraft or credit card debts, look to consolidate them on a 0% card or change your bank account to one offering an interest-free overdraft.
• Childcare – The government’s tax-free childcare scheme means you can get up to £2,000 a year per child to help with the cost of childcare. For more tips on how you can reduce childcare costs, check out our guide here.

Making small changes to your essential spending can have a big impact on the amount you have to pay out each month.

If you are looking for inspiration, check out our 20 simple ways to save money article.

Making a spending plan

Now it’s time to look at where you can change your spending on non-essentials such as meals out and activities. Be patient with yourself on this one!

To help get you on your way, follow the below tips.

Analyse your bank statements

Sit down with your bank statements – whether you choose to print them out or look at them through online banking. Doing this might open your eyes to your spending habits, and help you spot any forgotten or unused subscriptions.

Consider your spending habits

Don’t cut everything you love out of your life – you’re unlikely to stick with it long term.

But it’s worth thinking about your spending habits and behaviours. For example, are you a late night internet shopper? Or do you splurge when you have a bad day?

Set goals

Knowing why you are trying to budget will be a big help when it comes to sticking with the programme.

You may have a long-term goal to retire early, or you may have a series of short-term goals that includes building up an emergency fund or saving for a holiday.

For more inspiration, check out out our top financial goals for 2023.

Try ‘piggybanking’

Piggybanking involves using multiple accounts to segment outgoings into different areas. For example, you may use one bank account for groceries and household bills, and another for treats.

Some banks, such as Starling* or Monzo, allow you to distribute your budget into a series of ‘pots’. This means you withdraw only what you need from the corresponding pot, helping you manage your money more effectively.

If you’re thinking of using a budgeting app, see here for our review of the best budgeting apps.

Pay close attention to your spending

• Strip out any truly unnecessary outgoings
  • Get rid of unused memberships and subscriptions
• Think about how you can spend less without missing out on the things you enjoy
  • invite friends round for dinner rather than going out
  • go to second hand stores for your books and clothes
  • buy a decent coffee machine for the house

Whatever the reason, don’t be discouraged if you succumb to the odd spending impulse every once in a while. It’s no excuse to give up on your budget!

Managing unexpected bills

Financial experts recommend having enough to cover at least three months of essential outgoings in an easy access savings account. A rainy day fund:

• can help pay for any unexpected bills, e.g. a broken boiler or tooth
• can protect you should you suddenly lose your job
• give you freedom to leave an unhappy job or relationship

It’s important to make the most of your rainy day fund by searching for a savings account offering a high rate of interest.

Don’t have a rainy day fund? That is where creating a family budget and introducing a few small changes will help. Add a little extra into your monthly budget to cover unexpected costs, for example:

• Round down your income – say you earn £3,443 a month after tax, mark it down as £3,400
• Round up your monthly bills – say your mobile phone bill comes to £37, call it £40

If you face an unexpected bill before you’ve had a chance to build up a rainy day fund, you could spread the load at no extra cost by taking out an interest-free credit card or opening a bank account with a 0% overdraft.

REMEMBER: make sure you pay off the full amount on your credit card before interest starts being charged.

Saving for the future

If you have any wriggle room in your monthly budget, using the extra cash to safeguard your family’s future is a wise move.

To do this, you might want to split the total into a number of different pots, such as:

• an easy access savings account
• a tax-free individual savings account (ISA)
• a pension
• an investment fund for your children

You don’t have to put a lot in – even small amounts add up over time. But it does make sense to pick the right type of account for the type of saving you are doing.

Shorter-term financial goals such as a holiday or a piece of furniture? Then a regular savings account paying a high rate of interest might be your best bet.

Saving for retirement? If you are building wealth over the long term, then a pension or a stocks and shares ISA is more tax-efficient and should offer you better returns over time.

REMEMBER: if money is tight, it’s best not to commit to paying in a large amount to a pension or other account where your money is not easily accessible each month – especially if you don’t have much in the way of emergency savings.

Find out more about ISAs in our Guide to ISAs: Which ISA should I get?.

Cutting costs to clear debt

You should pay off any credit card or overdraft debts before starting to save.

This is because interest rates on debt are likely to be far higher than what you could earn on your savings. The average interest rate on a credit card, for example, is somewhere between 20% and 40% (unless you are on a temporary 0% deal).

For more on whether to save or pay off debt, check out our full guide here.

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