3 easy steps to creating a sensible family budget

Having a sensible family budget goes far in helping you to achieve your dreams: whether it's to retire early, buy a bigger house or save for your kids' educations, a budget helps you to see more clearly how you're spending your money. Here are three simple steps for creating a budget for your family. All you need to get started is some paper, a pencil and calculator.

Before you begin creating your budget, try this very simple exercise: for a whole month, keep your bills and receipts and write down all your expenses in a notebook. Don’t forget anything!

• Whenever you pay for something record it in your notebook – even your morning coffee.
• As this is a family budget, ask your spouse to do the same.

Don’t worry if you forget to record some of your expenditures. Just continue the exercise for another month in order to get a complete picture of your spending behaviours. After a month has elapsed, you're ready to make a family budget.

Record the amounts and sources of all the family’s income.

• Include salaries, wages, child tax benefits or child support payments, tips, rental income and the like.

If you have older children who have part-time jobs, include their income, meagre as it might seem.

• Although it may not contribute much to the bottom line, chances are your children are using their earnings to as spending money for their own entertainment, eating out with friends and maybe clothes. Ultimately, it's money that doesn't come out of your pocket.

It’s time to get out your trusty little expenses notebook, along with your bills and receipts and total up your outflow of money by category. It's helpful to remember that in budgeting, there are two types of expenses:

Fixed expenses
Monthly rent or mortgage payments, car payments, insurance, loan repayments and the like are considered "fixed."

• You'll know exactly how much these expenses cost each month.

Variable expenses
Such things as groceries, clothing, entertainment and leisure change from month to month.

• This second category is where you should include all your unnecessary expenditures, such as lottery tickets or that morning latte.

This is where you begin to truly understand how to make a family budget.

• First, add up all of your fixed expenses and subtract that amount from your total income. Whatever remains is your overall budget for variable expenses.
• Next, subtract from your overall variable expenses budget what you need for essentials, such as groceries.
• Last, deduct the luxuries from the final amount that remains after you have subtracted the essentials.

In an ideal world, you’ll end up with a surplus of money that you can direct into a savings account or mutual funds.

In theory, when you have a balanced budget your income exceeds your expenses. In practice, it may be necessary to make some changes for that to happen.

• If you’re spending more than you’re bringing in, then you’ll have to reduce the amount you set aside for certain expenses or earn more income. With these tips and a bit of organization, you should be able to get things on track.