How to create a family budget that works for everyone

How to create a family budget that works for everyone

There are many ways to teach financial literacy to kids, but one of the best ways is with a family budget. This can help them understand how money works, how to make wise financial decisions, and how to save for the future.

Why you need a family budget

Aside from helping you manage your money, a family budget is a great tool to teach kids about income and expenses. When kids see how much money they have to earn to pay for different things each month, they start to understand how budgeting, income and expenses work. Creating a family budget also teaches them about the importance of financial planning and managing money wisely.


How to make a family budget

Creating a budget is a dynamic process which requires regular fine-tuning to reflect changes in income, expenses, and financial goals. Talk to your children about why you need to set a family budget and show them how being committed to following it helps you achieve financial stability.


To create a budget:

  • Assess your current financial situation. Start by gathering information about your income. Make a list of all income sources, including salary, savings and any other sources of income. 

  • Categorise your fixed outgoing expenses. These are costs for housing, transport, groceries, utilities, bills, debts, and insurance payments. Once you have this list, show it to your kids so they can understand what you need to pay for.

  • Create a budget outline or via a budgeting app. Then allocate a specific amount to each fixed expense, for example, Gas and Electricity £150 a month, mortgage or rent £1000 a month, food £500 a month etc. 

  • Now add in variable monthly expenses. This is a good place to get input from your kids. Show them how much money there is and ask them to allocate it across clothing, entertainment subscriptions like Netflix, going out, takeaways, holidays etc.

  • Know your budget goal. A budget aims to ensure your total outgoings do not exceed your total income to avoid money worries.

Things to consider when creating your family budget

Outside of the above-fixed essentials, there are several other elements to consider when creating a family budget. 

  • Your lifestyle. How do you like to live? Do you enjoy eating out and going to the cinema? Do you like taking holidays or buying clothes? Your lifestyle will affect your budget, so it's important to be realistic about your spending habits.

  • Your financial goals. What do you want to save for? A new car? A pension, or your kids’ education? Financial goals will help you stay motivated and on track with your budget.

  • Your family size: The larger your family, the more expenses you'll have. When creating your budget, consider the cost of food, clothing, and other necessities for each family member.

  • Your debt: Include the monthly payments in your budget if you have debt. The sooner you can pay off your debt, the more money you'll have to save and invest.

  • Your emergency fund: It's wise to have an emergency fund in case of unexpected expenses. Aim to save at least three to six months of living expenses in your emergency fund.

  • Your flexibility: Things happen. Sometimes you'll have to go over budget. That's okay. 

Tips for using your family budget to help build your child's financial education

  1. Make budgeting a family activity. Get everyone involved in creating and managing the budget. Get them to work out costs for having a day out and see if the family budget allows it, or whether eating out is too expensive this week and what you can do instead, perhaps a fakeaway over a takeaway?


  1. Be open and honest about your finances. Don't be afraid to talk to your kids about your expenses and debt in an age-appropriate way. This will help them learn about the real world of money and also speak with you about their money worries so you can reassure them.


  1. Make budgeting fun. There are many ways to make budgeting fun for kids. You can use games, activities, and even rewards to help them learn about money. Make it a game in the supermarket to see who can find the best deal for items on your shopping list. Challenge older kids to find a discount code for their favourite brand.


  1. Be patient. It takes time for kids to learn about budgeting. Don't get discouraged if they don't understand everything right away or refuse to understand why you can't afford something.


  1. Talk about needs versus wants. This is an essential part of budgeting and financial literacy and helps kids understand the difference between what has to be paid for and what they can wait or save for,


  1. Practise what you preach. Kids are like sponges watching your every movement, so ensure that you demonstrate what you preach, such as delaying gratification and not breaking the budget. 


  1. Create money goals together. Hand in hand with talking about needs versus wants comes money goals, which most kids will happily get involved with. Brainstorm how you can save money as a family. Talk about setting up family-saving goals and what you want to work towards.


  1. Set up a savings account for your child. Encourage them to save their pocket money or any other money they earn. This will help them learn the importance of saving goals and the power of compound interest.


  1. Give them regular pocket money. It doesn't have to be much, but enough that they can budget their own money and put into practice the messages you are teaching them about money.


  1. Play budgeting games with them. Game of Life (Ages 8+), Monopoly (Ages 9+) and Minecraft (Ages 8+) teach the importance of resource building and delaying gratification for future goals.


Types of Family Budgets

50/30/20 Budget

The 50/30/20 budget is a simple method that helps you allocate your income into three categories: needs, wants, and savings.

  • Needs 50%: These are essential expenses 

  • Wants 30%: These are non-essential expenses 

  • Savings 20%: This is money that you set aside for future goals


The percentages are just a starting point. You may need to adjust them based on your circumstances and financial goals. For example, if you have a young family, you may need to allocate more of your income to needs, such as childcare and food.


Envelope budgeting

This type of budget involves dividing your income into envelopes (either real or digital), each representing a different category of expenses. 


For example, you might have an envelope for rent, an envelope for groceries, an envelope for food, and so on. When you spend money, you take it out of the corresponding envelope. This helps you stay on track with your spending and avoid overspending in any category.


Zero-based budgeting

This type of budget is similar to the envelope budget but more detailed. In a zero-based budget, you assign every penny of your income to a specific expense to ensure you are not overspending in any category.


Resources for creating family budgets

Creating a family budget can be challenging, so these resources make the process faster and simpler:

  • Budget planner from MoneyHelper. This free budget calculator will help you to know exactly where your money is being spent and how much you've got coming in.

  • Citizen's Advice Budgeting tool. This is an excellent budgeting tool to help you understand: what you're earning and spending and where you might be able to cut costs.

Best budgeting apps for kids - these help kids budget their pocket money and earnings.


How can GoHenry help?

GoHenry is a prepaid debit card for kids aged 6 to 18 that helps kids learn about money management, budgeting, and saving. The app allows parents to set up weekly pocket money for their children, which helps children learn how to budget their spending. You can set up savings goals and controls around spending while our in-app Money Missions teaches kids about money basics in a fun and engaging way. 



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Teaching kids about money

Teaching kids the value of money

Teaching your child about credit

Helping your child build their credit

Financial literacy activities
Written by Anita Naik Published Jul 20, 2023 ● 6 min. read