How to budget & save for your family’s financial future

Budgeting and financing are crucial considerations. It helps you stay aware of your monetary incomings and outgoings and gives you a good basis for making smarter money choices. With a budget, you are better placed to assess and achieve your purchasing, investment and retirement goals.

Many people know the benefits of budgeting, but they fail to make actionable plans. However, it can be an incredibly important thing to do when coordinating family finances so you can achieve your short and long-term goals.

MoneySmart outlines six elements to creating a family household budget:

1. Record your income

2. Add up your expenses

3. Set your spending limit

4. Set a savings goal

5. Adjust your budget (as things can change)

6. Make budgeting easier (by setting up strategies such as separate savings accounts)

Budgeting and saving

The annual household budgets

According to our study called ‘The Real Concerns Index’, almost 9 in 10  Australians surveyed were concerned about the rising cost of living, and what impacts this could have on their day to day lives. 

To start, it is important to outline a snapshot of your monetary income and expenses. Firstly add up all your regular and significant expenses, such as your mortgage, rent, utilities, phone, car repayments and groceries. MoneySmart provides some clarity on how to get started with tracking your expenses.

Having a budget helps you see where your money is going. You can put aside money for bills and expenses and set up a plan to reach your financial goals. Follow MoneySmart’s budgeting steps to get started. Use how often you get paid as the time frame for your budget. For example, if you get paid weekly, set up a weekly budget.

Other than your total annual household income, add up your expenses. You should have both fixed and variable expenses, which are then broken up into sub-categories such as mortgage repayments, entertainment, essential groceries and dining out.

The Federal Government website Moneysmart, has a free budget planner that can help you organise and outline every aspect of your household budget plan.

Establish a realistic spending and savings plan

Once you have the figures for income and expenses, you can go through these to work out what expenses you can easily cut back on. New clothing you don’t need, streaming services you no longer use enough to warrant the subscription and eating out are some categories you can easily cut back on. Brainstorm the different ways you can save more on food, entertainment, kids’ expenses and everyday household expenses.

The goal here is to have a clear savings plan with actionable steps for cutting back on expenses and putting away extra money. But remember to give yourself and your family rewards occasionally, so it is not too hard to stick to your new budget. Review your spending and saving targets often to make sure they are realistic.

Similarly, if changing your money behaviour overnight is challenging, do it more gradually by picking one habit this week and adding another next week. Follow this rule until you have adopted multiple habits that will help you spend less and save more.

How to pay off debt?

Other than your mortgage, you might have other forms of debt that are more urgent to pay down, such as credit card debt. If you have significant credit card debt this can sometimes be stressful. To work to pay that down consider making extra payments above the minimum required and try to either pay off the smallest debt first or if one of your cards has a higher interest rate than the others, you may wish to pay that one down first. You could also be proactive and contact your bank about getting a lower interest rate.

If you are looking for extra ways to get rid of your debt faster, finance specialist Holly Johnson from The Simple Dollar suggests one of the most effective ways to get rid of debt quickly is to pay off more than your minimum repayment. If you only pay the minimum, you'll pay a lot of interest and it will take years to pay off your debt in full.

Set up a savings goal

Another insight from The Real Concerns Index showed that 74% of Australians surveyed feel a struggle in getting ahead financially. Unless you’ve won the lottery or have a sizeable inheritance, setting a savings goal and sticking to it is the best way to establish a solid foundation for the future. By getting into the habit of saving money, you can avoid living week to week, and will be able to reach major milestones like saving up for a house deposit, paying off your mortgage and taking that overseas holiday sooner, even while you meet your ongoing expenses and living costs.

Make sure your savings goals are sensibly balanced between consumption (e.g. buying a new car or taking a trip overseas) and wealth-building goals (e.g. buying shares or investing in property).

How to automate savings?

Saving money can be made easier if you automate it and make the money less easily accessible. As you set up your budget, work out what percentage of your combined household income you can realistically put away each month, and have this amount paid out into a dedicated high-interest saving account  each payday.

Also, try to forget about your savings account until you have reached your savings target. This is money that could be used for paying the deposit on a house, buying a car, making extra mortgage repayments, investing or contributing extra funds to your super.

Updating your budget

Once you have finished setting up your budget and listing savings action steps, you will periodically revisit your budget to update it, adjust it, and tick off milestones. Remember there are many tools such as apps that let you track your spending on the go , whether you’re at the grocery store or need to check your daily spending.

Have an emergency cash fund

Although most of us would prefer not to think about it, unexpected things can happen at any time. If you have planned carefully for your family’s finances, it is more likely than not you will be able to weather those unexpected events.

Having an emergency fund offers you peace of mind and ensures you and your family can continue to meet your financial obligations if something unexpected happens.

Setting up a separate high-interest emergency savings account can help your emergency fund grow. Some banks offer accounts that reward you with increased interest rates when you do not touch your money for a set period of time, which may provide you an additional incentive to leave your emergency cash alone!

Income protection insurance

Income protection insurance  is another way to plan for risks and ensure you and your family are protected if you unexpectedly become sick or injured and cannot earn an income.

Income protection insurance can pay you a percentage of your income over the period of time you choose, until you are able to return to work. This is so you can keep up with your expenses, and you get back on your feet without the added financial stress.

A good thing about income protection insurance is that your premiums can be tax deductible. But you should seek the advice of a professional to understand if it applies to your situation. By having income protection insurance in place, you will be taking the right steps to help protect yourself and your family financially. Click here to find out more about Real Income Protection Insurance and how it can help.