A fresh new year offers numerous opportunities to envision how you want the year ahead of you to look. It’s an especially good time to tackle a new (or a first) budget for the family that will help you establish priorities, goals and shape the year to come.
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Budgeting doesn’t have to be for adults only, either; getting your kids involved in the process is a great way to teach financial savviness early and prepare them for a future built on a solid foundation of financial literacy. The more involved in the process they are, the more kids can understand why some of their desires may not be possible, and you can show them that with careful attention, patience and responsibility, many goals can be achieved over time. This guide offers 10 tips to help parents budget better.
Last updated: Jan. 19, 2021
Evaluate Your Family Expenses
It can be easy to overspend when you aren’t paying close attention to your expenses. Especially if you have more than one child, expenses add up stealthily. To start balancing a budget, take a close look at what you spend and where. You can think of your costs as falling into two categories: fixed and variable. The fixed expenses are the crucial things you have to pay every month and stay relatively the same from month to month: housing, food, utilities, etc. The variable expenses may only occur a couple of times per year, may not be crucial — such as vacations or gifts — and include unexpected or rare expenses such as a car or appliance repair.
Learn More: How To Budget For the Year With COVID-19 Uncertainty
Base Goals on Your Budget
You might attempt to set independent financial goals of what your income and expenses currently reflect. However, until you know what’s really coming in and going out, any financial goals you set will be theoretical. First, determine what income is left after expenses and then consider goals such as saving for retirement, emergency fund, kids’ college and travel.
Read More: The Top Expenses To Cut From Your Budget in 2021
Involve the Kids in the Budgeting Process
The earlier you expose your kids to money management tips, the better for their own long-term financial health and habits. Showing your kids what money you actually have can also go a long way toward staving off their unreasonable expectations for things, from toys to travels, that you can’t yet afford. You can also set them up to earn their own money, save it and spend it responsibly, skills they will need sooner than later. Plus, having kids help brainstorm ideas for cost-cutting tips can soften the struggle of having to tighten your belt and create family bonding.
Learn More: 6 Tips for Getting Your Kids Involved in the Family Budget This Year
Assess Child Care Expenses
Paying for child care, whether in-home or at a day care style facility, can be a costly enterprise, averaging almost $10,000 per year, per child. During the COVID-19 pandemic, it’s also more challenging to do so safely. First, parents should do a cost-benefit analysis to see if the cost of child care is worth it, given what you earn. For example, if you’re barely breaking even on the cost of child care, it may be time to ask if the job you have is worth it, or if it’s better to stay home with your kids. But if it is worth it, or you don’t have the luxury of leaving your job, you might consider alternative schedules with your spouse, working from home a few days a week (if you aren’t already), a nanny-share or co-op (if you can do so safely).
Read: The Best and Worst Things About Working From Home
Make a College Savings Plan
You may not be able to fathom college when your kids are still in diapers or elementary school, but these are precisely the years when you want to begin saving for that eventual expense. While you may not be able to put a lot toward it, consider opening a 529 plan, which often allows you to deduct contributions from your taxes, are tax-free to take out and use toward paying for college, and earn money over time. What you are able to save over time may determine the kind of college you can send your child to, a less expensive community college versus a state or Ivy League university.
Related: 21 Budgeting Tips for College Students
Consider Buying Second Hand
Once you’ve assessed your budget, you’re likely going to find that you need to cut back in some areas in order to free up income to meet other financial goals. One of the easiest ways to cut back on spending is to purchase things second hand, particularly clothing and even furniture. Now, with sites like ThredUp and Poshmark, you can even shop online. The benefits of second hand, alongside a lower cost, especially if you have kids, is that you won’t feel it as much when kids grow out of clothes or worry if you stain or tear things.
Read More: The Best Apps To Help You Set and Stick To a Budget in 2021
Shop Generic
Another excellent and simple way to begin saving money on the things you purchase every day is to switch from buying name brands to shopping for generics. Generic products can range from food to household items, to medications. Ask at the store if you don’t see a generic, or store-brand, option. Shop online from sites that only sell generic. You can save hundreds, if not thousands of dollars per year.
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Find Low-Cost Fun Family Activities
If your budget doesn’t force you to find low-cost and affordable ways to keep your family entertained, the pandemic probably already has. Many people are spending less on such things as travel, amusement parks and centers, movies, sports and other activities that COVID-19 has curbed. But if you’re still looking for ways to cut back, don’t forget old school activities cost little to nothing, such as board games, charades, scavenger hunts in the neighborhood, bike rides, walks at the beach and many other ways to have fun.
Related: Affordable Indoor Entertainment Options To Keep You Busy All Winter
Save For Travel
The new year is a great time to start planning for any summer vacations you might like to take this year or next (depending on COVID-19 safety). Decide how much you’ll need to spend and break that down into a monthly goal. If possible, open a separate savings account just for travel and set an automatic draft into it each month. If you can’t do that, even a vacation savings jar where you store change and unexpected cash that comes in can make a dent. The point is that the more you plan ahead, the better prepared you’ll be, financially, when the time comes.
Read More: How To Budget and Plan For a Vacation in 2021
Plan For Retirement Savings
The new year is also an important time to take a good look at your future retirement planning. It can be hard to think of retirement when your kids are young, but those years will be upon you before you know it. If you don’t already have a retirement account through work, or any other sort of savings, now is the time to start, and the later you are to starting, the more money you should allot in your budget to this endeavor.
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This article originally appeared on GOBankingRates.com: The Ultimate 2021 Budgeting Guide for Parents
