The rapidly changing state of the economy is affecting many families across the nation, including those here in Southwest Florida. Many of these families need to reevaluate their financial position and plan to accommodate those changes. Some are looking for budgeting strategies to help them get a handle on their money and improve their financial outlook. While the rippling effects of economic recession hit close to home for many, we have some tips on how to set up a family budget that can help anchor your family’s finances in the midst of an economic downpour.

Basically, a budget is a money plan, a financial map keyed to expected income that shows exactly how that income will be distributed. It can help your family gain greater control over your regular monthly expenses, as well as preparing you for unexpected expenses such as car repairs bills.

Before you map out your family budget, you will need to do a little investigative work, to find out where your family is currently spending money. There are several different ways to do this. You can either review your bank records or keep track of all purchases, including both those made with cash and those bought on credit.

You will need to take a look at three consecutive months of expenditures in order to get a good idea of exactly where your money is being spent. Although it may seem tedious at first, it is an important prelude to setting up a budget. You need to have a realistic idea of where you are currently spending your money before you can establish a budget.

It won’t help to set up a budget that isn’t realistic; it will be doomed to failure. If you think you spend only $150 on your weekly grocery bill but you don’t take into account the two weekly stops by the store on the way home, you won’t be able to accurately plan the food category in your budget.

The next step is to categorize your expenses. Once you know where your money is currently being spent, you can record that information on a budgeting worksheet and break the expenses down into smaller sub-categories. For example, located under the housing category would be smaller sub-categories such as utilities and lawn maintenance. You need to include both regular monthly expenses (such as utilities) and non-monthly expenses (such as house repairs) in order to have a successful budget. Overlooking occasional expenses will only produce problems for your budget, somewhere down the road. To help you get started, you can download a free budgeting worksheet at docs.google.com.

Once you have set up categories within your budget, you need to decide how much money should be allocated for each category, making sure to stay within the limits of the household income. Some monthly expenses will be fixed and others will vary month to month. You should have a good idea of how much money needs to go into each category, based upon a review of your expenses for a three-month period.

If you see that your outflow is greater than your household income, you need to find areas where you can reduce spending. First, take a look at flexible spending categories like ‘recreation’ and ‘clothing.’ Try to reduce spending in those categories without eliminating them altogether. Modified spending is often the best answer to budgeting problems. Yet another option, of course, is to create more income.

The last step towards setting up a family budget is to get everyone in the family on board with the idea of sticking to the revised financial boundaries. Family members might meet the idea of newly imposed spending limits with some resistance. By taking it slowly, they will have some time to get acclimated to the financial changes occurring within the family.

It is important for everyone in the family to agree to work together, abiding by a budget for the financial well being of all. Taking some time in the beginning to explain the benefits of living according to a spending plan will help family members to see this as a positive change in the financial climate of the home.

Finally, stick to your plan. You may not see an instantaneous turnaround in your finances but you will certainly be on the right track to achieving financial success. Peace of mind and financial stability are more valuable than the dollar, in these uncertain economic times. Reevaluate your plan from time to time, making adjustments as needed. And remember to reward yourself for all the hard work you’ve done. You deserve it. Just make sure, if you treat the family to a nice dinner, that you’ve budgeted for it!

TEST YOUR TEENS FINANCIAL IQ:

If you have a teen, you want to be sure that he/she knows the financial basics while you still have time to correct any misconceptions. Quiz them to see if they know these basic financial terms:

Balance: The amount of money you have in your account.

Endorse: To sign your name on the back of a check in order to cash or deposit it.

Insufficient Funds Fee: The fee that is charged by a financial institution or business when a check does not clear.

Less Cash Received: The amount of cash you get back when you make a deposit.

Overdraft: When your account goes below zero and there is not enough money to cover the withdrawal.

Reconcile: A process to make sure your checkbook balance matches your financial institution’s balance for your account.

Deposit: (noun) The money you put into your account or (verb) to put money into your account.

Withdrawal: When you take money out of your account via check, ATM, automatic payments or other methods.

Memo: The area on a check that denotes what the check was written to pay for.

Outstanding check: A check that is still going through financial institution processing.

(Terms and their definitions are taken from Consumer Debit Resource at www.consumerdebit.com).

by Jennifer Morgan