You don’t have to have a lot of money in order to have financial freedom. As long as you have a handle on what you spend, what you need and what’s extra, you can create a budget that’s easy to stick to and helps you achieve your financial goals.

Why should you have a budget?

Some people love the idea of a budget-- the order and control of it. Some people hear the word and immediately feel restricted. And if you’re young and single, you might feel like you have “forever” to save money so creating a budget doesn’t feel like a necessity. Regardless of where you are in life or how budgeting makes you feel, creating and sticking to one can actually be supportive and freeing. Here are some of the things a budget can help you do:

• Manage your family finances. See “The Cost of Having Kids” below.

• Achieve financial freedom.

• Plan for your children’s future.

• Achieve personal goals like going back to school or buying a house.

• Achieve lifestyle goals like taking a trip you've been dreaming about.

• Retire when you want to.

• Elevate your level of comfort.

• Take an extended break from work to travel or work on a passion project.

• Start a business.

The cost of having kids

If you have kids you know that managing your family finances is one of the most important benefits of sticking to a budget. Because kids might be priceless … but they’re also expensive. The government put the annual cost for a newborn at around $13,000 for a married couple in 2017. Adjust that for inflation and by the time the kid is 18, the cost of raising that child will be more than a quarter of a million dollars.

An increasing expense for many parents is youth sports teams. A recent survey found that more than half of parents spend between $100 and $500 a month on their kids’ sports. Nearly 30 percent copped to spending more than $500 per month per child.

Obviously, how much it will cost you to raise your child(ren) will differ depending on where you live, whether or not your children go to private or public school, the activities in which they engage, what and how they eat, and more. But again, regardless of the choices you make regarding your children, creating a family budget will help ensure you have enough money to pay for the necessities and make better decisions for the family as a whole.

Four steps to calculate expenses and save money

To build a family budget that can help you save for the necessities and the fun stuff as well as plan for retirement, you need to know how much money is coming in (i.e. income) and how much is going out. Then assess whether it’s inline with your goals.

Step 1: Figure out what you’re actually spending.

No guesstimating allowed. Log into your online banking, get your credit card statements, get your checking account statements, go line by line. You can jot down the expenses on a notepad, put them in a spreadsheet (this will make things easier later, or input them into the budgeting tool of your choice. Complete this exercise for the past three months as this will give you a good idea of your average monthly spend.

Once you have all of your expenses, organize them into categories that make sense for your family. Examples include: household supplies, kids school, kids activities, clothes, food, entertainment, utilities, rent/mortgage payment, car, etc. If you’ve listed your expenses in a spreadsheet, the organizing part is easier.

Once your expenses are categorized, total each category.

Don’t worry, you won’t have to do this every month. There are lots of online budgeting tools to which you can connect your credit cards and banking accounts that will automatically track and categorize your spend for you.

Step 2: Divide expenses into needs, wants, and savings

Now that you know exactly what you’re spending on each expense category, it’s time to prioritize that spend. And there’s no correct way to do it. Everyone has different priorities and is willing to make different tradeoffs but what everyone has in common are three different claims on their income: Needs, Wants and Saving.

Needs are expenses you can’t live without. Housing costs generally fall into this category and if you need a car to get to work, your car payment gets categorized as a “need” as well. If you’re creating a family budget your kids’ needs will include: childcare cost, tuition, medical care (if they have a chronic condition that needs managing), or anything else that’s appropriate for your situation.

Wants are the fun stuff. The elective stuff. The expenses that aren’t necessary for your basic survival. For parents, these expenses might include things like date nights and gym memberships, and for kids they might include activities like youth sports and toys.

Savings are the portion of your income that you don’t spend. They include contributions to retirement accounts and your Health Savings Account (HSA), deposits to your traditional savings account or brokerage account, or any other way you save your money.

Step 3: Run your finances through the 50-30-20 test

There are many ways to prioritize your spend. One strategy is to organize your budget by the 50-30-20 rule, which means you aim to spend no more than 50 percent on needs such as housing, debt payments and groceries, you can spend 30 percent on “wants” and 20 percent goes into savings.

So, decide how much of your income you want to allocate to each category, create a spreadsheet with your income on top, total it, put your categorized expenses below, then total those. Now take a look at where your current spend is. Is it inline with your strategy? If you see some areas are wildly out of whack, you might need to make some adjustments.

For instance, if your needs are eating up 70 percent of your take-home pay, then you need to investigate the line items that go into this category to see where you can downsize or cut back. That might require moving to a different neighborhood or finding a cheaper childcare option. Maybe you need to shop at a different grocery store or choose simpler meal options.

One common place to look for excess spending is in your transportation options. There’s a difference between needing a car and needing a very nice new car that you financed with a long-term loan that eats away at your budget. According to Experian, the median monthly cost for a new car loan is more than $525.

Alternatively, if your “needs” fall within the 50-ish percent range but your “wants” expenditures are preventing you from building adequate savings, you might need to cut spending from this category. For instance, if you have an expensive gym membership, you might be able to get similar results with a simple weight set and a monthly membership to a fitness app. Or maybe you choose cheaper date night options or limit the kids to one activity per season (this will also help free up the family schedule).

Step 4: Make saving a must

Whatever you do, you must prioritize saving as a part of your “spend”. There are two non-negotiable types of savings you must budget for.

1. An emergency savings fund. This could support your family for at least three months (preferably longer) in the case that one or both parents loses their job. If you don’t have this “financial seatbelt” you should start making monthly contributions to a savings account that you don’t touch.

2. Retirement. You can save for retirement by contributing to a 401k, an IRA or Roth IRA, or even your HSA.

Saving for retirement

If your budget is tight and you’re having to compromise on “needs” and “wants” in order to achieve the 20 percent savings threshold, it might be tempting to put off saving for retirement. Especially if it’s 30+ years off. I mean, you’ve got kids to raise today, right?

Well, saving for retirement today actually helps your kids later. The average 65 year old couple that retires today will pay an estimated $300,000 just in medical expenses over the course of the rest of their life. That doesn’t account for housing costs, food, clothes or any of the fun stuff that makes retirement worth working all those years. If you can’t pay for your “needs” in retirement, that burden falls to your children. And their family budget might not have room for the added expense.

So before you put off saving for retirement in order to pay for “wants” or even “needs”, pay your future self first. Making retirement saving a budgeting priority is going to serve your family well down the line.

How to make healthy financial choices

Take the emotion and impulse out of your spending. Once you’ve decided on your strategy, and you’ve decided where to make the necessary compromises, it’s time to act. Cancel the gym membership, research the cheaper living situation or childcare option, start shopping at the new grocery store. Then check in with your spend on a weekly basis to make sure you’re staying within budget.

Make sure you’re also checking in on your progress toward your financial goals on a monthly basis. This will help keep you on track if sticking to your budget starts to feel restrictive.

Before you take on any new expenses, take a look at your budget and figure out under which category they’ll fall and what you’ll have to compromise in order to take them on.

Learn more with Lively

To see how a Lively HSA can help you meet your financial goals, visit our website or reach out to us.