How Do I Make a Family Monthly Budget?

Paul Gougé is a lead consultant in planning excellence at Northwestern Mutual.

Family life can be hectic: When you’re not at work, you’re helping the kids with their homework or chauffeuring them around and then hustling to get dinner on the table every night. You may get to the end of the month and ask yourself: “Where does all of our money go each month?”

If that sounds familiar, you’re not alone. More than 30 percent of families say they don’t live on a monthly budget, according to Northwestern Mutual's 2023 Planning & Progress survey. Creating a budget—and sticking to it—may sound daunting, but it isn’t as difficult as you may think. And taking control of your essential spending and saving for the future can free you up to splurge on activities and experiences that will make lasting memories.

If you’ve been avoiding creating a budget, here are some tips to help you get started.

5 Steps for creating a monthly family budget

1. Tally up your total take-home pay

The first step to creating a realistic budget is understanding how much money you have to work with. Add up what’s actually landing in your bank account each month from each spouse’s salary—after taxes and any other payroll deductions (such as retirement contributions and health care premiums). Remember to include any income brought in from freelance work or side gigs and be sure to set aside money for year-end taxes if it’s 1099 work.

2. Identify your essential expenses

Next, you’ll want to take stock of the expenses that keep your family’s life going, such as mortgage payments, daycare, groceries, utilities and life insurance. Usually these expenses are inflexible, but they’re also fairly simple to map out as they don’t change much from month to month. As a guideline, you should try to limit your essential expenses to about 60 percent of your monthly budget.

Pro-tip: Don’t forget to include irregular costs such as quarterly insurance bills and annual property taxes. Add those up and divide by 12 to figure out how much money to put away each month in your savings account. This way, when those bills roll around, you have the funds to pay them. Using a household budget worksheet can help you map out these expenses and easily update them as things change.

3. Set aside money for future goals

It can be helpful to break up your saving targets into short-, mid- and long-term goals, such as saving up to take classes that can lead to career advancement or for a down payment on a family home. This is also the place to list any retirement contributions you are making to IRAs or for a child’s 529 college savings account. Making progress toward your goals—and enjoying the rewards when you reach them—can help keep everyone motivated to stay on budget.

If you haven’t already established one, set up an emergency fund (typically six months of expenses held in cash). This will provide a layer of protection in the event of a short-term interruption to your income.

Overall, 20 percent or more of your income should be dedicated to saving and investing toward future goals.

4. Add up your discretionary spending

Every good budget includes the money you spend on having fun such as eating out, signing the kids up for club sports and activities, attending entertainment events or taking a long weekend at the beach.

If it feels challenging to calculate an amount for this category, try adding up what you spent on everything that fits into this category over the last three months to determine an average. This can help you determine your expenses for a typical month, which should generally come out to no more than about 20 percent of your take-home pay.

5. Put it all together

Take your family’s total monthly take-home pay from step 1 and subtract from the total your fixed expenses (step 2) and the amount you regularly set aside for your goals (step 3). The number remaining is what should be available for your family’s discretionary spending each month. If the amount is greater than the discretionary amount you added up in step 4, that’s great: Your family is living within your means, and you might even have a little extra cash to apply toward funding one of your goals more quickly.

But if you find you’re overspending in the discretionary category, don’t panic. Take a look at your expenses to see what’s taking up most of the budget. Consider whether there are places to make budget cuts, such as subscription services you’re not using. You may also be able to lower some of your bills by shopping around for car insurance or doing some meal planning before you hit the grocery store.

You’ll want to repeat this exercise as often as your situation changes—a new job or raise, a refinanced mortgage, credit cards paid off, or other changes to your cash flow might allow you to reposition dollars each month either toward your financial future or something you’ve been going without. So try to have fun with it and be sure to celebrate with the occasional splurge.

For help creating a budget or assessing your entire financial plan, a Northwestern Mutual financial advisor can help you determine how much to put toward your goals and how to protect the income that is funding them. With a plan in place, you can feel confident that you’re on the right track.