One of the most important things you can do to manage and control your household finances is to create a family budget.  In the age of online bill paying, debit cards, and still moderately easy credit, it’s easy to spend more than you realize.  Many of my clients have absolutely no idea what they’re spending on things like groceries, insurance, or even their mortgage or electric bill.  I may take their paystubs and calculate out their monthly income, then when I use the numbers they give me for their monthly budget it appears that they have $400-600 left over to save and pay down credit cards, but they tell me that they’re always strapped and waiting on that next pay day.

Step 1:  Find Out Exactly Where You’re Spending Money Now

So, how can you tell what you’re actually spending?  It takes some work at the front end, but most banks online banking tools make this easy for you.  For example, Bank of America’s online banking tools allow me to classify every debit charge I make.  Then it continues to mark future purchases with the same merchant.  Their “Portfolio Services” then allows me to create a chart showing exactly how much money I spent in each of the categories I defined.

Programs like Microsoft Excel can help you do the same thing if your bank doesn’t offer these online tools.  The website Mint.com offers a service that they say will help you “Understand what’s going on with your money.”

Step 2:  Analyze Your Spending for Potential Savings

Creating a budget that just spends exactly how you spend now doesn’t do much good.  One of the purposes here is to help you identify and control your spending.  So, once you know where you currently are spending money, we need to look and see what you can do to save some money in these categories.  One recent client of mine had no idea that she was spending nearly $250 per month on lunch at work.  She started brown bagging and saved more than $100/month.  I’ve rarely had a client who was not surprised by some aspect of their spending habits and could not find a way to save.  Check out our article on ideas to reduce spending to see if they can help you.

Step 3:  Set a Savings Goal

Everyone needs to save money.  If you do not have an emergency fund for your family, that should be a top priority.  The fund should contain enough money for your family to provide food, shelter and utilities for three months in the event of job loss or illness.  In today’s economy of long term unemployment, if you can do more, you absolutely should.  So, figure out how much you need to save to get to that goal within the next 12 to 18 months, faster if you can.

One great website I’ve found to encourage savings and setting goals is SmartyPig.com.  This won’t work for your emergency fund, but for other savings goals you have, this site offers competitive interest rates, FDIC backing, the ability to increase your funds by redeeming in gift cards, and a Social Media component to not only encourage your savings, but also to allow friends and family to contribute to your goal.

The main key to setting a monthly savings goal is that it should be realistic.  You’re probably not going to be able to afford to save 30% of your take home pay every month (if you can, that’s fantastic and you absolutely should).  And like all goals, setting an unrealistic one is a surefire way to discourage and derail your efforts.  So, be realistic.

Step 4:  Priorities, Priorities

The first items on your budget should be the highest priorities.  Take a life-saving drug every month?  That budget item goes up top.  Food, shelter, and on and on until you get to the absolute discretionary spending.  It’s just as important to prioritize these, too.  The perspective it gives you helps you know what can be forestalled or eliminated to make way for your savings goals.

Step 5:  Publish Your Budget

This doesn’t mean have it bound, but I would suggest your print it out and share it with those closest to you.  Accountability is your friend.  Carry it with you, track your spending, hold yourself and your family members accountable.  You should NOT however, chisel the budget in stone.  It will need adjusting.  You may find that the priorities you set shift.  Once you meet the core savings goals, you may want to relax some of your goals.

Ask a dieting expert and they’ll tell you, that deprivation is one of the leading causes of diet failure.  So too with setting a too stringent budget.

Our family budget is a constant work in progress.  We are always looking for ways to save money, but we realize too that we need the occasional deviation to maintain our sanity.

Points to Ponder:

If you’re in a relationship and creating a “Family” budget.  Do NOT do this by yourself.  Your family should be involved from the top to the bottom.

If you aren’t being vigilant and keeping yourself on track, then you’re just wasting your time.

Many people find it easier to have savings automatically deposited from their paystub into an account at a different bank than checking.  This makes it a little more difficult to tap into the savings for non-emergency situations.

If you pay off your car while you’re on your budget, consider paying your savings account the same amount as your car note for a little while.

After you’ve establish an emergency fund, consider the interest you’re paying on your other loans.  You may be better off paying down higher interest lines of credit, especially considering that with todays artificially low interest rates you’re likely paying higher interest than your money is making in the bank.

Don’t let the artificially low interest rates discourage you from saving.