How to Budget for the Family this New Year

With the cost of everything rising, families all around the country are feeling the pinch. In the last few years I’ve personally experienced massively soaring electricity bills, petrol costs, childcare costs and food costs. This is all without income increases, so naturally it means the belt has to be tightened. I’ve got some tips for you on how you can budget for the family and save some money this New Year.

Making a Budget

The first thing anyone needs to do is to make a budget of all their income and outgoings. It’s absolutely imperative that you understand where your money is going so you can assess it properly. If you have any debts it’s also crucial to consider what your options are with them, but I’ll cover that a bit later. First, the budget.

Make a simple spreadsheet, whether that’s with google sheets (totally free) or just on a piece of paper if you’re more comfortable with it. On one side write down all your income, and on the other side list every single thing you spent money on in the last month. List whether the things going out are “essential” or not. Repeat this for the last 3 months if you want to be really accurate and get a bigger picture.

This allows you to see if there are areas you might need to cut down on and also gives you a full understanding of your own finances.

Use the 50-30-20 rule

The 50-30-20 model is a simple budgeting idea that’s designed to help you look at your expenditure and hopefully make some positive changes. It stands for:

• 50% of income spent on essentials
• 30% of income spent on wants
• 20% on savings (or debt repayments if you’re in debt)

So you add up all of your income each month (after tax) and then you can budget what you spend it on. 50% Essential needs would include all the things you can’t live without, that’s your mortgage/rent and all of your bills, food, transport, mobile phone, insurance and any minimum debt repayment.

30% wants are things that you want but don’t need, like a night out or a takeaway, some new clothes, or entertainment like Netflix or Disney. You might be wondering where school activities go if you have kids. I know how expensive things like football classes, swimming classes, and even things like attending Beavers or Scouts all adds up. Not to mention things like trips to the cinema or to local attractions. Whilst they might seem like essentials, I think that these primarily go in the wants category, but you can put them at the top of this list. There may be cheaper options, like finding fun free days out. Something like a big school trip abroad could have a savings pot created for it. For long-term pots like these, it’s worth thinking about whether some of that money could work harder than it would in a standard savings account – The Investors Centre has a helpful way of matching your money to different stages of life.

The final 20% should be spent paying off your debts if you have any (not including mortgage payments which are covered in essentials). If you don’t have any debts, pay this into a savings account.

If you’re not sure how to calculate this then look at your spreadsheet we created in the first section with all of your income and outgoings. To calculate a percentage of your income you can use the calculator on a phone or computer and do the percentage you want / 100 * your income. So for example, if your income was £2000 a month after tax and you wanted to calculate 30% of it, it’s just 30 / 100 * 2000 in a calculator, which is £600 to spend on things you “want”. If in your budget you’re going over this figure, where can savings be made?

Sometimes we need to see it written down where our money is going and what lifestyle we can afford to live. Give it a go!

Can you reduce the cost of your essentials?

There may be some way of reducing the cost of your essential payments. For example shop around every time your home, travel or car insurance renewals are up. Don’t just let them renew without checking out prices, as you may be able to find a better deal this year. I also recommend shopping around for your food before deciding what’s the best option for your family. For example I primarily buy from Aldi or Lidl, but I’ve also dabbled with grocery boxes such as Gousto or Hello Fresh as you can sometimes get really good box discounts. Keep an open mind with new recipes and buy what’s on offer that week to save a little bit of money. I also recommend making sure you’re signed up to each supermarket’s offers scheme, such as Tesco Clubcard or Nectar at Sainsbury’s as you never know when you’re going to get a good offer come your way! By keeping flexible you can take advantage of the best prices.

Create a savings goal

If you have a goal in mind for your savings it can keep you motivated and on track. For my family we split our savings in three ways. First is our emergency fund, which isn’t very fun to save for but good to have and gives peace of mind. This is especially important for my family as we have quite a lot of pets – 3 cats, a dog and a plethora of reptiles! Even with pet insurance, emergencies and extra costs can arise. The second is our son’s savings account, which will hopefully have enough in it when he turns 18 to either buy a car, or pay for a year or two at university. So those are open-ended savings pots that I put a set amount into each month.

The third is the good one – our travel pot! Whatever’s left over after our pet fund and children’s fund goes into the fun fund. Right now we’re saving up for a family cruise which gives us all something really positive to look forward to. Creating your own savings goal like this can make budgeting and financial planning a little more fun. Other suggestions might be if you’re saving for a deposit on a house or perhaps you’re saving for a wedding! Whether you split your savings or how you organise it is up to you, so find something that really makes you feel good when you save up.

Be fully aware of your debt options

If you have any debt then you need to keep a clear head and consider how best to manage it. Paying off minimum payments is an absolute essential, so do not skip that. After that make a list of debts by priority. For example, if you have a 0% loan or credit card then that can be the last to be paid off; but make sure you’re making payments on it and you’re aware of when the 0% term ends.

Even if your debt has built up then there are usually options. For example you could take out a personal loan to consolidate the debt and thus not incur as much interest payments. This is just one of many options and if you’re feeling overwhelmed by debt, you should absolutely seek financial advice. Don’t sweep it under the rug and try not to think about it as that way things are likely to escalate. Please don’t feel ashamed to tell your family or a financial advisor that you need a bit of help when it comes to financial planning, or that you’ve got yourself into debt and need advice on how best to manage it.

I hope this has helped you take a deep breath and have some practical steps towards creating a family budget and giving yourself the knowledge you need to have a successful financial year!