The good news is that most Americans say they keep a household budget, but the bad news is that they may not do it well. About 20 percent of Americans manage finances in their heads without bothering to write down more exact plans. Possibly as a result of this, most Americans lack sufficient savings to be able to cover an unexpected $1,500 expense.
Financial experts say personal finance plans are best recorded and tracked on paper or through a spreadsheet or budget app. The point is to get something down in writing. However, the same budget will not work for everyone. Single professionals have different needs from families. Other factors come into play, too. There are different types of budgets designed for different needs, including for families. Read on to learn more.
Budgeting Factors
Which budget works best for you depends upon several factors. Important points to consider include:
- What is the level of your career?
- Where do you live?
- How much debt do you have?
- How much time do you have to track your spending daily?
Once you consider these points, you can more easily choose a budgeting routine that fits both your family’s needs and your lifestyle.
Bottom-Up Budget
This money management plan, rather than starting at the top with big-picture goals, begins at the bottom with the actual costs of your daily expenses. This method works well for families who are locked into large expenses such as child care, diapers, and medical care as well as mortgages and fixed transportation costs.
With a bottom-up budget, you start by figuring large set expenses into your income. Then, from the funds that remain, you can set savings goals and look at ways to curb spending.
Zero-Sum Budget
With this budget, you give every dollar a task. You start by paying yourself first. Allocate the first dollars to your savings goals or debts. Next, you put each dollar of your monthly income into a designated space so that you are left with zero or perhaps a small checking account surplus.
This budget requires a hands-on approach, but it is helpful because it bases next month’s budget on the previous month’s income and expenditure, giving you a real-time picture of your spending and expenses. This system works well for detail-oriented people and for those with high fixed expenses such as families. It is also helpful for those trying to control their spending.
Envelope Budget
With this budgeting system, you set aside an envelope for each of your spending categories every month, including fuel, rent or mortgage payment, food, utilities, and insurance from a reliable insurance agency. Once you have spent what is in each envelope, you are done. This system works best for those who are paid in cash or who prefer withdrawing their funds from a financial institution each month, but it can be adapted to digital envelopes or accounts.
This straightforward money management plan is good for families and is excellent when you need to reign in spending. You can also use it as an add-on to other budgeting plans when your spending gets out of hand. Eventually, you may want to add an envelope for going out.
The Bottom Line on Budgets
First and foremost, write your budget down, whether on paper or using a spreadsheet or one of the budgeting apps now available. Money management is important, especially for those with families. There are several types of personal budgeting styles that are common and work well for most, but three are specifically beneficial for families that have large fixed expenses every month.
The bottom-up budget, the zero-sum budget, and the envelope budget all work well for families seeking to curb spending and stabilize their finances. Once you establish a money planning system that works and reduces money worries, you can get down to the business of living your life. That works well for everyone.