News Archive

Managing a Family Budget

Sabra JacobsDid you know that financial issues are the most common stressor for families across the family life cycleregardless of which socioeconomic category the family falls into?

Below is a distribution of income level for U.S. Families in 2006 (Statistical Abstract of the United States, 2009):

Income Level of Family

Percentage at This Level

Less than $15,000

8.4%

$15,000--$24,999

9.2%

$25,000--$34,999

10.5%

$35,000--$49,999

14.5%

$50,000--$74,999

19.8%

$75,000--$99,999

13.5%

$100,000 or more

24.2%

The median family income is approximately $58,407.

Did you know that the estimate for raising a child from birth to age 18 was approximately $120,150 about 10 years ago and that the cost is now projected to be approximately $135,000? This total includes only the basics such as housing, food, transportation, clothing, health care, and education. It does not include more frivolous things like birthday presents, entertainment, vacations, etc. And, because more than 90% of American adults will raise at least 1 child in their lifetime, this presents a wake-up call for families to create reasonable budgets that they are able to follow.

Budgeting is simply the allocation of expenses on a regular basis. To construct a workable budget, individuals need to carefully examine their personal values in regard to saving and spending and monitor their plan at least once a month. There are two stages in the process of managing financial resources: 1) organizing and planning and 2) implementing decisions. The first phase includes values clarification, goal settings, and resource allocating. The second phase includes facilitating, checking, and adjusting, as needed.

Values clarification is determining what you want to spend your money on. What is most important to you? Can you live without it or must you spend your money to attain it? For example, everyone needs food and shelter, but what types of food and shelter they consume both can and do differ from person to person. One person may eat fast food and live in their car, while another may make peanut butter sandwiches at home and rent a house or apartment. Still another may own a house and raise a garden and enjoy occasional meals at restaurants. Each family must choose how to spend the monetary resources that they have acquired.

Next, the family must set some goals about how much money should be spent for which expense category. For instance, the family may determine that no more than 1 weeks take-home pay will go for monthly housing expenses. This will automatically determine the types of housing the family will be able to afford in their geographical location. Another goal may be to eat as healthy as possible. That may mean that their projected food budget may have to be increased because of the added expense of fresh fruits and vegetables for their diet.

Resource allocating refers to how much money will actually be spent to buy which expense items and it also includes the different sources of income used to pay for the items. For example, if a family of four decides that they will spend $600 a month on food, then they must determine which source of funds will pay for their food budget. Perhaps one of the adults in the home earns $900 each month (take-home pay) working part-time hours at Walmart while the other adult in the home earns $700 dollars each month (take home pay) working part-time for a private business. The family food budget may be paid for by taking $300 from each of the adult incomes or the whole food budget could be paid from one of the adult incomes. Additionally, this family should try to find a home and its monthly expenses for approximately $400 a month. That will leave the remaining monies (approximately $600) for the rest of the familys expenses such as transportation, clothing, health care, and education.

Here is a family budgeting worksheet that you can print-out and use to help you set-up your own family budget:

Download Family Budget Worksheet (PDF)

After completing your family budget worksheet, it is time to facilitate how your income will meet your familys budgetary needs. Do you make an adequate income to meet all of your familys expenses? If so, then congratulations!! You probably will not get into a serious debtor situation. If not, then you will need to look at your expenses and lower or eliminate the amount of money you are currently spending for that expense item(s) to better accommodate your actual monthly income. Alternatively, you or your partner may need to find additional employment to meet your familys financial responsibilities.

Next, you must double check the figures you have calculated for each expense category and make sure that you have not exceeded your earned income. If this has happened, then you must go back and re-figure how you plan to spend your money in order to balance your total monthly income with your total monthly expenses.

Finally, a good budget gets reviewed and adjusted as the income and expenses of the family changes. For instance, if one of the adults in the home earns a pay raise, then the family can determine which expense category(ies) will be increased. Alternatively, if one of the adults in the home loses their job, then there will have to be cuts across all or nearly at least some of their familys budgetary expenditures.

If you are lucky enough to have surplus money left over after subtracting your total monthly income from your total monthly expenses, then it is important for you to save as much as you can for your future. Unfortunately, life has a way of occasionally requiring the unexpected out-laying of large amounts of cash and it is important to have a cash-cushion that can help to absorb these surprises in life. Many famous monetary experts have suggested that you should have at least the equivalent of 6 months of monthly income saved in a rainy day account to help you and your family in cases of emergency. These emergencies may include job loss, death of a partner, catastrophic illness or injury, serious vehicle accident, etc. Not having to worry about immediate expenses during these tough and sad times will be one less trauma that you and your family will have to suffer. And, it will also keep your creditors off your back and preserve your good credit score for when you might want to take out a loan for a large purchase such as for a new home.

As your family progresses through its lifespan, it is important for everyone to share their feelings regarding the allocation of family finances. For instance, before large purchases are made, it is important for both partners to discuss the purchase and agree on buying it prior to actually paying for it and bringing it home. Shapiro (2007) has suggested some additional circumstances to discuss with your partner and/or family members prior to buying an item. These may include: the engagement ringshould one be bought? How big? How expensive? Does having a smaller ring really mean that you love your partner less?; having babieswill the mother stop working? Will the family budget survive without her income? Who will control the family income?; teen yearswill all children receive a car when they turn 16? Who will pay for the car? Who will pay for the driving lessons and driving test? Insurance? Gas?; graduation from high schoolwill all children go to college? What type of collegecommunity, private, or public? Will the child stay at home and commute or will they stay on-campus or in an apartment off-campus? Who will pay for it? Are there other sources (such as grants and scholarships) that can lower the family costs for college?; and retirementwill the couple save their money or travel around the world? Can they afford long-term health care? Are their life insurance policies paid up-to-date? Will the couple have enough money to live independently or will they have to move in with other family members?

As you and your family navigate along lifes uncertain roadways, always remember to have open communication about your familys financial affairs and to stick to a budget within your means. These things will help you to avert many unwanted surprises and misunderstandings and strengthen your bonds of love and respect for each member of your family.

Suggested References:

DeFrain, DeFrain, amp; Olson (1997). The Resource Book: Teaching with Marriage and the Family: Diversity and Strengths. (Second edition). Mayfield Publishing Company: London.

DeSpeller amp; Prettyman (1980). A Guidebook for Teaching Family Living. Allyn and Bacon, Inc.: Boston.

Knox (2011). M amp; F. Wadsworth: Belmont, CA.

Shapiro (2007). Money: A Therapeutic Tool for Couples Therapy. Family Process, 46:279291.

Statistical Abstract of the United States (2009). (128th edition). U.S.Bureau of the Census: Washington, DC.

Questions or Comments? Please contact: Sabra Jacobs, Professor of Psychology, Big Sandy Community and Technical College, 1 Bert T. Combs Drive, Prestonsburg, KY 41653; email sabra.jacobs@kctcs.edu; call (606) 889-4778; or stop by my office Pike Building, room 209 f on the Prestonsburg Campus.