How to create a family budget
The Cost of Living Crisis
Dan Collins
WriterTrying to take charge of your money? We've put together a step-by-step guide to creating a family budget, as well as tips on how to make your money go further, and what you can do if your expenses are bigger than your income.
With energy costs constantly increasing and prices for everything on the rise, it’s easy to feel overwhelmed by financial stress. Making sure you can feed your family week to week and still pay all of your bills at the end of the month can feel like you’re spinning plates that are determined to smash on the floor.
The average household income in the UK was £31,400 in 2021, according to the Office of National Statistics. That means that about half of us are on less than that, and if you’re a new family working on or around the Minimum Wage, there’s a good chance that having over 30 grand a year seems like a pipe dream.
Creating an effective family budget is one of the first steps to feeling like you have some control over your situation. Once you have a firm handle on your incomings and outgoings, you can start to see where you can make savings, and how much wiggle room you’ll have with your pay cheque.
There are different ways of doing a budget: you might be a spreadsheet whiz who can make a budget on your computer that calculates everything when you type numbers in, or maybe you prefer to write everything down in a budgeting book and work it out yourself. Whatever your preference, the basics of putting a budget together remain the same.
How To Create A Family Budget – A Step By Step Guide
Putting together your budget for the first time can be a bit intimidating, but once you’ve finished you might be surprised at how good it feels to know exactly what’s going on with your money. So, let’s take a look at the steps you’ll need to follow to get your brand new budget up and running...
Step 1 – List your income
It might sound obvious, but it’s important to know as accurately as possible how much money you have coming in each month. This can be a bit tricky to be exact on, especially if you're self-employed, have a zero-hour contract, or claim benefits that vary from month to month.
However, if you can’t predict for certain how much you’ll be getting this month, it might be easier to take an average of the last 6-12 months. Even an average of the last three months can give you a decent place to start from.
Things to count under your income include:
- Your salary (and if you have a partner, their salary, too)
- Any benefits you receive, like Universal Credit or Child Benefit
- Other sources of income, such as if you have a property that you rent out, or if you receive regular and reliable financial help from your family
Step 2 – List your expenses
This is easiest if you have internet banking, or at least the last few months of your bank statements. Put together a list of all the money that’s gone out from your current accounts and credit cards, and what you spent it on.
If you use a lot of cash, it might be hard to track exactly how much you've spent, and on what. You may need to take a month or two to keep track of all the money you spend, to give you a sense of where it's going.
Step 3 – Break down expenses into essential and non-essential
By breaking your expenses down into the things you have to pay for, and those you choose to buy, you can work out what’s called your ‘disposable income’. In other words, it’s the money left over once you’ve paid all your bills and bought everything your family literally can’t survive without.
Essential expenses include:
- Rent/mortgage
- Utility bills (gas, electric, water, internet)
- Council tax
- Groceries
- Baby essentials like nappies and formula
- Childcare
- Medication
- Pet supplies
- Debt repayments
Non-essential expenses include:
- Subscription services like Netflix, Disney+, Amazon Prime, and Spotify
- Gym memberships
- Eating out and takeaways
- Trips out to places like the cinema or the pub (sorry!)
- Pumpkin spice lattes
These lists aren’t exclusive. Think about whether or not your family can survive without it. If you can, it’s non-essential.
Step 4 – Work out your disposable income
Now you’ve got this worked out, subtract the essential expenses from the total monthly income you worked out in Step 1. The amount that’s left is your disposable income – money for luxuries, fun, emergencies, and if the Heavens smile upon you, putting away for savings.
Now you’ve written down what’s coming in and going out each month, you’ve created your first budget. Congratulations! The trick now is keeping up with it each month, to ensure you’re in charge of what happens with your money rather than wondering where it’s all gone.
Tips for making your budget go further
So, you’ve worked out your monthly budget, you know how much money (if any) you have left over after your essentials, and now you’re probably wondering how the hell you’re supposed to keep a family happy with £20 of disposable income a month.
Here are a few suggestions on how you can cut down on your expenses, and hopefully have a bit more cash left over to spend on your family:
- Find ways to save on utility bills – for example: only heat the house when there are people at home, turn off lights and gadgets when you’re not in the room, replace baths with showers, wash your clothes on a cooler setting. See more energy-saving tips here.
- Cut down on fuel use – petrol and diesel is expensive. Can you walk or cycle to places you normally drive to? Or carpool with another parent from your child's school for pick-ups and drop-offs? See more ways to save on petrol costs.
- Change your utility suppliers – your mileage may vary with this one, as it’s getting harder to find better deals thanks to the worldwide increase in energy prices, but you still might be able to find a better rate with another provider if you shop around a bit.
- Reduce your TV, internet, and phone tariffs – you might be able to save some money by getting a cheaper package. Switching providers can help here too, as they often offer cheaper deals for new customers. Once you’ve found a better price, talk to your current provider and they might well match it or beat it to keep you as a customer. Be ruthless with them!
- Cut out luxury groceries – work out which parts of your weekly shop aren’t necessary, and stop buying at least some of them. For all of the vital stuff, try discounters like Aldi or your local pound shop. You’ll often be able to find cheaper prices or cheaper versions. See more great ways to cut down your food bills.
- Cut down on subscriptions – if you’re not using them often, you might not really need them sucking money from your account each month.
- Talk it through with your family – having an open and honest discussion with your family about your money situation can be an important step. Find out which parts of their extracurricular activities are the most important to your kids, and which they would mind less about not being able to do. That way if you do have to make cuts, you can do your best to keep their most cherished experiences going.
Small savings across the board can add up significantly in the long run. If you're wondering if it's really worth cutting something out, try multiplying the amount you spend on it each month by 12 to get an idea of how much you'll be saving over the next year.
What can I do if my expenses are more than my income?
With the energy price cap increases, what used to be an affordable amount each month is quickly becoming one of the biggest expenses in people’s budgets. Combine that with stagnant wages and the highest inflation rates in 40 years, and it’s easy to see why people are worried about making ends meet.
Going into debt can be a scary prospect, but simply not paying for your bills is not really a good answer. All that will get you is angry letters and debt collection agencies hassling you, and it will tank your credit rating. That’ll make it harder for you to borrow money in the future, as well as making it tricky to get new phone contracts or even a new place to rent.
Here are a few ideas to help you if you’ve tightened your belt as far as it’ll go, and you’re still in the red:
- Call your utility providers – while it might feel a bit like pushing the problem down the river, if you talk to your suppliers about how you can’t afford their bills, they will work with you to find an amount that you can afford to pay each month. By doing this with all of your utilities, you should be able to cut them back to a level where you can afford all of your essentials.
- Apply for Universal Credit (UC) – if you’re not already receiving benefits, UC can help to make ends meet if you’re on a lower income. Housing benefit is also paid by UC, so you might well be able to get help paying for your rent. If you’re really in trouble, you can apply for an advance on your first payment, though later payments will be reduced to make up for this.
- Apply for a Council Tax reduction – also called Council Tax Support, the UK government’s online tool will help you find out how to apply for a reduction in your council tax. Depending on your circumstances, you may be able to get up to 75% off, or even not have to pay Council Tax at all in some specific cases.
- Consolidate your debts – having numerous debts spread out over credit cards and overdrafts can quickly add up, especially as interest rates are rising. Talk to your bank about combining them under one account, ideally with a 0% rate or an interest-free overdraft, and set up a monthly payment that you can afford. They may even be able to give you a period where you don’t have to pay for a few months, to help you get back on your feet.
- Get free financial advice – there are several services available that will provide you with free advice and give you an idea of what your options are. MoneyHelper and Citizens Advice are two of the most helpful.
If you're looking for more advice on dealing with the cost of living crisis, then check out the stories below. You can also share your story, as well a tips and advice, with other parents on our Forum.
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