6 basic principles of budgeting to help you succeed

When you’re a parent, you do a lot of monitoring. You keep track of your kids so they stay safe and healthy. But what about your bank account — you know, the one that funds all of those comings and goings? 

Personal budgets teach you where the money goes so you can take control. By spending less here and shopping around there, most families can free up money for the things that matter.

Fortunately, the principles of budgeting are easy to learn. With these under your family's belt, you'll be ready to get a handle on your finances.

The importance of budgeting

Not convinced of the need for budgeting? You're not alone. More than a quarter of Americans — 27% — don't think they need a budget, according to a survey by Credit.com.

Setting budgets may not be a birthday party, but it's the first step in personal financial management. You need a budget to understand how your expenses relate to your income, including how much remains after necessities. 

A budget shows you how much you spend on what. That information helps you make more informed financial decisions, from how much you can put aside for retirement to whether you can afford that Disney vacation. 

6 basic budgeting principles to help you succeed

Understanding budgeting is simpler than you might think. The main goal is living within your means — controlling your spending so you spend less than you earn.

All general budgeting guidelines relate to this goal. Resources say things differently, but most tips expand on these key principles.

1. Establish money goals

The budget process is always more motivating when you start with exciting yet realistic goals. Maybe you want to surprise your kid with a trip for their upcoming graduation or buy a pool for the backyard. Have your kids been dreaming about getting a dog? Goals like these will drive your decisions and help you stay committed to the budget.

Brainstorm as many goals as possible, then narrow them down. Have this be a family activity, with each person suggesting something they want to achieve money-wise. Younger kids can have an older sibling or parent help with reality-checking.

2. Track earnings and expenses

Specifics are essential to effective budgeting. "About $1,000 a week" is a very different number than $1,125 a week, especially if you go over every week for a month. If you work from an annual budget, that's an extra $6,500 a year!

To create realistic budgets, you need to record your income and expenses precisely. Record everything going in and out of your bank account for at least two months or longer if your income varies. If you spend more than you earn, think about curbing your spending habits or creating another income stream. 

Consider whether to work from a single budget or create individual budgets for different family members. When teens make their own budgets, they learn accountability for their money.

3. Create budget categories

Once you estimate your income and expenses, it's time to create the framework for your budget. Consider starting with standard budget categories, such as:

• Housing: Rent or mortgage, maintenance, insurance

• Utilities: Heat, electricity, water, internet, cell phone plans

• Transportation: Fuel, car repairs, insurance, public transit fare

• Healthcare: Insurance premiums, typical co-pays, over-the-counter products

• Savings: Emergency fund contributions, stock buys, retirement account deposits

• Debt payments: Student loans, personal loans, car payments

Thoroughly budget for expenses, down to lacrosse balls and pet shampoo. An extremely detailed budget lets you track everything you spend, giving you a clearer picture of where the money goes.

Finally, remember to include discretionary spending, which goes to anything you want but don't need. Dinners out, salon haircuts, skincare, and hobby supplies are all discretionary spending. 

4. Start planning for future expenses

A prepared budget is your first step to long-term financial health. It shows you how much you have left over at the end of each month, allowing you to create a proactive financial plan.

This step recognizes that finances inevitably change. Your budget with two kids in elementary school will look much different when they go off to college or you need to add them to your car insurance.

Financial budget planning prepares you for these unexpected expenses. Ask yourself what costs you might need to face five or 10 years in the future, and consider what you can do now to prepare. 

5. Learn to invest wisely together

Financial stability is a key budgeting goal for many families, and strategic investments can help get you there. You don't have to be a financial professional or have prior investing knowledge.

Greenlight makes learning about investing fun for kids, teens, and parents. Greenlight offers beginner-friendly content that teaches your family how to invest smartly from day one, plus an investing app that lets your kids practice hands-on.

Investing as a family helps your kids see the benefits of budget preparation. If you create a budget category for investments, you can decide how much to allocate and what to buy. 

6. Plan for the unexpected and be flexible

No matter how diligent your financial planning is, unexpected expenses happen to everyone. Whether it's a car repair or a surprise medical bill, your budget may need some tweaking from time to time.

It's essential to have a budget item for building an emergency fund. A general rule is to have enough in your fund to cover three months' expenses. It's a good idea to put that fund in a separate account so you don't accidentally spend it.

If something does happen, you might have to change your budget while depending on your emergency fund. Even building your fund might require some frugal living. 

Don't panic — frugal living doesn't mean giving up everything you love. It's about watching your spending and being mindful about what you buy. In other words, it's about budgeting.

Discover more financial resources for your budgeting process

So, there you have it — the six basic principles of budgeting, presented in a list you can bookmark and reference. Use it as a guide to start creating your family budget.

The more you learn as you go, the more valuable your budget will be. Greenlight is here for you with resources for kids, teens, and parents, plus a debit card app to help your kids learn to spend responsibly. Dive into budgeting with Greenlight and discover the fun of getting money-smart.