A family budget is a plan for your household’s incoming and outgoing money over a certain period of time, such as a month or year. It helps you track your spending, make sure you are not overspending, and reach your financial goals.
When did I start a family budget?
I have been tracking finances of my family since 2010. You can learn how to start family budget here.
Which business tools do I use to make family budget?
My family has a family budget just about the same as businesses have corporate budgets. And, I manage our family finance pretty much in the same way as accountants manage business’s finance.
To be specific, I use common final accounts to manage our family finance in a very similar same way to managers who manage business finance. They include Profit and Loss Account (P&L Account), Balance Sheet and Cash Flow
What does my family budget include?
Therefore, I specifically track in details three things inside my family budget: net earnings, wealth and available cash.
Firstly, our Income as well as Expenses including Fixed Costs, Variable Costs and Maintenance Costs. We generate both Active Income from work which accounts for accounts 80% of our annual earnings and Passive Income from various investments which accounts for the remaining 20%.
Secondly, monthly Cash Flows including Cash Inflows and Cash Outflows.
The total Wealth (Net Worth or Equity) of our family which is the difference between our Assets and our Liabilities.
What time frame does my family budget cover?
I usually make general five-year plans such as 2015-2020 and 2020-2025.
Hence, I have done our family budgeting until the end of 2025. But then, I extended it for one more year until the end of 2026 because my labor contracts usually last for two years and are renewable every two years. This will make budgeting family finance easier and more applicable to our real-life situation.
Things are quite predictable here in China, so budgeting is easy.
In fact, we have two family budgets
The main difference between an annual family budget and a monthly family budget is the level of detail.
I run personal finance of my family based on two budgets – detailed monthly budgets and the overall annual budget for the year.
An annual family budget gives me a high-level overview of our Income and Expenses over the course of the year, while a monthly family budget gives me a more detailed breakdown on a month-to-month basis.
Which budgeting method do I use?
To prepare the annual budget, I use incremental budgeting – modifying the annual budget at the beginning of each year based on the historical numbers from the last year. Incremental budgeting means modify the annual budget at the beginning of each year based on the historical numbers from the past year.
Typically, I do some detailed budgeting for next year around November. Then at the end of December, I just confirm the numbers in my Excel spreadsheet while making very minor modifications.
What software do I use for making my family budget?
I use self-made Excel spreadsheet to record all financial transactions that happen in my family. Yes, it is a little old-school way, but I like it this way.
I make back-ups on monthly basis and keep the budget file in two different places both online and offline.
How reliable is our family budget?
My family budget is working quite well and I am able to forecast pretty correctly (95% < accuracy) our monthly income and monthly spending as well as available cash. Most of the time over the past couple of years, when it comes to my family finances, we had stable months regarding monthly income and spending, and our saving rate was good too, as predicted.
When you start living in a new place, it can take a few months to figure out how much exactly your spending would be every month. Ideally, you should target higher income and lower spending each month. When you increase your income and lower your spending, your savings will. The same applies to businesses – if you can increase sales revenue without increasing costs, you are maximizing profit (earnings) for the owners.
For example, we managed to lower our family expenses by roughly RMB1,000 in May comparing with the first four months of 2023 on average. Also, both me and my wife managed to boost our monthly income starting from April 2023.
Rebudgeting required from time to time
It is important to review and update budget regularly, especially if your income or expenses change dramatically. This will help you make sure that your budget is still working for you and that you are on track to reach your financial goals.
Rebudgeting might be required when your average monthly costs are higher than what you had forecasted for the year. It might happen when your family is getting bigger or your children are growing up (babies are expensive!), your family member starts living with you or you have a sudden change in your household members caused by a divorce of death.
For example, while I had done some tedious work in the Excel spreadsheet to adjust our family budgeting for the rest of 2021, I still needed to rebudget for the next couple of years from 2022 to 2026 after my daughter was born.
Simplifying family budget is also required from time to time
I decided to simplify as much as possible the Excel spreadsheet with my family budget when changing from working full-time into living on passive income. The less time I spend on weekly basis managing family money, the more time I will have available to spend with my children as they are growing up so fast.
In summary, the best type of family budget for you will depend on your individual needs and financial situation.
