How to Make — and Keep! — a Family Budget

Let’s face it, budgeting isn't anyone’s idea of a good time — but not having a strategy for managing your money is like hitting the highway without a GPS. Saving dough can be particularly tough for parents-to-be, who may be tempted to splurge on all sorts of baby gear, and for new parents themselves, who are usually too overwhelmed and exhausted managing life with a baby to devote time to managing their finances. 

But the payoffs of planning are huge, so read on and get started on making your family budget.

Set a financial goal

Experts say budgeting is hard for new parents because they tend to focus on the short term instead of the long term. But think about what you’ll need down the road a bit: Whether you’re saving for a minivan, a bigger place to live or your child’s college fund, sticking to a plan is easier with a goal in mind.

Determine exactly how much you make

Look to your pay stubs and bank statements to determine your monthly income. In addition to your after-tax salary, does your family take home any other cash? If you write for your hometown website, sell crafts on Etsy or list your home on Airbnb over the summer, add that income to your total for the year and average it out over 12 months.

Plan on being a stay-at-home parent? That means you’ll have to live on one paycheck. Before you take the plunge and quit your job, practice living on your partner's paycheck for a while and use yours to pay off debt or save.

Figure out exactly what you’re spending

This is the tough part! Most people aren’t sure how much money they dish out every month — and if they are, they usually don’t track exactly where they’re spending it. The problem: If you don’t know how those dollars keep disappearing from your bank account, you’ll probably have a hard time staying out of debt (and you most likely won’t save for that dream retirement). 

To begin, review your monthly credit and bank statements to see where you’ve spent your money over the past six months. Then track how you spend during the next month, carefully noting if you make any out-of-the-ordinary purchases, like vacations or holiday gifts.

Create your budget

A good plan for most families is the 50/30/20 budget, which corresponds with your needs, wants and goals:

• 50 percent for housing, bills, groceries and other everyday necessities
• 30 percent for nonessentials (gifts, vacations, entertainment, dinners out) 
• 20 percent for savings and paying down debt 

Once you’ve got a good grasp on your monthly spending, group each and every expenditure into these three categories to see how you’re doing. All of your essential spending should equal roughly half of your take-home pay with 20 percent (or more) going towards savings — and if it’s not, you can make adjustments to get it there.

Use a budget tracking system

If you don’t have a system, you won’t stick to your budget. One popular option is using an Excel spreadsheet to keep a running tally of your expenses. It’s easy to read — especially if you color-code the rows. 

Make accounting a bit easier by signing up for a site like Mint, which can track your budget, tell you where you’re spending your money and even alert you if you go over-budget.

Or try an app like Mvelopes, which uses the old concept of envelope budgeting with a location-based feature that recognizes where you’re spending money (like the grocery store), and subtracts it from your virtual food envelope. There’s also You Need A Budget (YNAB), which lets you download transactions in any format you like into pre-populated categories, or you can DIY with categories you create.

Trim unnecessary expenses

While you might not have much control over some fixed expenses (like a car payment or mortgage), you can limit others. Review your receipts to figure out what you can do without.

If you’re surprised by the $200 you spend eating out or the $50 you spend on ATM fees, start by cutting back on those costs. 

Baby gear can also run up the bills — from the stroller to the diaper bag to the teddy bear. And don’t forget everyday essentials like diapers, wipes and baby food. 

Think about scratching the least important items from the list and borrowing or buying second hand gear instead. (Make sure any item you borrow or pick up at the thrift store meets current safety standards.) You can also save money on diapers by trying a subscription service or buying in bulk. 

Allocate your savings

Wondering what’s the best way to plan for the future? It’s never too early to start thinking of your baby’s higher education. But first you’ll need to: 

• Pay down any credit card debt you have. Reducing credit card debt by $1,000 can save you about $200 a year in interest — or more if you’re subject to high penalty rates. 
• Build up an emergency fund. Aim for three to six months of living expenses, say experts.
• Contribute to your retirement, via an IRA, 401(k) or other plan. The better prepared you are money-wise, the better off your entire family is financially — and you'll be able to help your child down the road. 

After all that, you can turn your attention to building that college fund. The first step: Set up a 529 college-savings account, which lets your money grow and eventually pay for college expenses tax-free. 

Remember: She may be eligible for scholarships to college and can get guaranteed, federally funded student loans, but you won't be able to help with the rest of her expenses if you have no savings of your own. 

Keep adjusting your budget

It’s important to remember that a budget isn’t static. It’s easy to slip into old routines, especially when it comes to spending habits. Even when it’s working, things around it can throw it out of whack. 

These range from prices — from gas to milk to diapers — to your own life. You might be ready to strike formula from your budget once you wean your baby, and, in a few years, your child care expenses may go down once preschool starts. 

The birth of a second baby is another prime time to revisit your budget. If you add another child to the equation, or if you decide to trim your hours to spend more time at home, you need to go back and adjust.

With all the expenses a little one brings, expected and unexpected, it's easy to forget about long-term financial planning for your family (along with any hope of sleeping past 7 a.m.). But taking a few simple steps now can help both you and your child reap rich rewards in the future.