Basic Family Budget Example
STEP #1 Adding Up Your Income
Before you can start budgeting or planning how your money will be divided, you need to determine your total income per month. If you and your spouse are both working, add both amounts together. Remember to include ALL income that comes in on a monthly basis.
In this example, we are going to start with a net income of $4,000 a month or approximately $50,000 a year. We will also assume that the family is paid on a bi-weekly basis, and that the federal, state and local taxes have already been deducted from the paycheck. Hence, there will be two checks of $2000.00 arriving throughout the month. Remember, this is just an example. You may earn more or less than this amount, and you may receive your paycheck on a different schedule. This example is only meant to give a basic idea of how to set up a family budget. You will need to made adjustments to apply to your particular situation.
Once you have identified your family’s total income, you can start your budget. It may look something like this:
Sample Budget
Pay Period 1 Pay Period 2
Total Income: 2000.00 Total Income: 2000.00
STEP #2 Tithe
As Christians, we believe that the first 10% of our income belongs to God and should be paid in the form of tithes. This is non-negotiable. It does not belong to you, it belongs to God. Just like the government takes their share directly from our paycheck, God’s tithe needs to be the first expense paid in every Christian family’s budget.
As you look at our sample budget, you may have noticed that we set aside $230.00 instead of $200 for the tithe. That’s because I believe a Christian should tithe from the gross of their income rather than their take-home pay. The Bible says we should give God the first fruits of our income, not what is left over after the government takes its share.
Sample Budget
Pay Period 1 Pay Period 2
Total Income: 2000.00 Total Income: 2000.00
Tithe: 230.00 Tithe: 230.00
1770.00 1770.00
STEP #3 Savings
After you pay your tithe, the next person you need to pay is yourself in the form of a savings account. A savings account is your first line of defense against debt during an emergency. It is advised that this be 5% of your income.
Sample Budget
Pay Period 1 Pay Period 2
Total Income: 2000.00 Total Income: 2000.00
Tithe: 230.00 Tithe: 230.00
1770.00 1770.00
Savings 100.00 Savings: 100.00
1670.00 1670.00
Step #4 Housing
Now it’s time to start budgeting your fixed expenses. In most families, the largest fixed expense will be housing---either your mortgage payment or rent. It is recommended that a family’s housing costs not exceed 30% of their total income.
As we enter into the fixed expenses phase of the budgeting process you will notice that the mortgage payment is only listed in pay period 1. Because this is such a large expenditure many families find it necessary to pay the mortgage at the beginning of the month, and the other fixed expenses during the 2nd pay period. You will need to use your own discretion in this matter depending on when your mortgage payment is due. This is just an illustration.
Sample Budget
Pay Period 1 Pay Period 2
Total Income: 2000.00 Total Income: 2000.00
Tithe: 230.00 Tithe: 230.00
1770.00 1770.00
Savings: 100.00 Savings: 100.00
1670.00 1670.00
Mortgage: 900.00
770.00
Step #5 Debt Repayment
After housing costs, the next thing you need to factor into your budget is debt repayment. This will include any car payments, credit card payments, home equity loan payments, student loans, or any other payments.
Even though we advise all Christians who want to follow God’s financial principles to stop going into debt immediately, we realize that those who are at the beginning of the budgeting process will probably have a burden of debt that needs to be repaid. As I said, when we started living on a budget, we had to pay off my Dad’s debt. This became a very large portion of our family budget. (Over $600 a month) At that time, we chose to scale back to only the bare necessities so we could pay off the debt as quickly as possible. We have never regretted it.
As you evaluate your personal finances, we encourage you to put as much money as possible toward debt repayment. Your exact amount will be determined by your income, your fixed expenses, and the total amount of your debt. Still, we strongly advise that all Christians restrict their discretionary spending as much as possible until their debt is eliminated. For the purposes of this example, we’ve designated $100.00 for debt repayment and $300.00 for repayment of a car loan. You will notice that we’ve placed these expenditures in a different pay period to help offset the cost of the mortgage payment.
Sample Budget
Pay Period 1 Pay Period 2
Total Income: 2000.00 Total Income: 2000.00
Tithe: 230.00 Tithe: 230.00
1770.00 1770.00
Savings: 100.00 Savings: 100.00
1670.00 1670.00
Mortgage: 900.00 Debt Repayment: 100.00
770.00 1570.00
Car Payment 300.00
1270.00
Step #6 Fixed Expenses
Fixed expenses are the bills that must be paid every month. They would include: house insurance, car insurance, utility bills, heating bills, etc... You will need to determine what your fixed expenses are and the exact amount that you need to budget based on your family’s expenses.
Sample Budget
Pay Period 1 Pay Period 2
Total Income: 2000.00 Total Income: 2000.00
Tithe: 230.00 Tithe: 230.00
1770.00 1770.00
Savings: 100.00 Savings: 100.00
1670.00 1670.00
Mortgage: 900.00 Debt Repayment: 100.00
770.00 1570.00
House Insurance 100.00 Car Payment 300.00
670.00 1270.00
Car Insurance 100.00
1170.00
Property Taxes 100.00
1070.00
Heat 100.00
970.00
Water/Sewer/Garbage 150.00
820.00
Electricity 100.00
720.00
Telephone 50.00
670.00
At this point, I’d like to point out two things in our example. First, you may have noticed some items like property taxes, heating bills, or even insurance payments that are paid on an annual or bi-annual basis rather than monthly.
However, our family has learned that the best way to pay these bills is to divide the total amount of the annual bill by 12 and place that amount as a monthly fixed expense in our budget. Otherwise, how will you have the money to pay the bill when it arrives? Rather than deal with the stress of not being able to pay insurance premiums or property taxes, we advise people to make a small payment to yourself each month and place it in a savings account. When the bill comes, you’ll be ready. You may also want to consider using this method to help cover the rising costs of home heating bills. It is much easier on the budget $100 a month than to pay $400 a month in November, January, and March.
The second thing you may be asking is “Why are practically all of the fixed expenses listed in the second pay period?”
The answer is, “Because most of the money in the first pay period went toward the mortgage, and you will need some discretionary spending for things like food, gas, and medical expenses during both periods.” That brings us to step #7:
Step #7 Discretionary Spending
Discretionary spending is the money that is left over after the fixed expenses are paid. It is now at your discretion how you will divide this portion into categories like, food, medical expenses, clothing, household expenses, gas, and spending. These are the areas we can cut back when necessary and make adjustments.
Although there are recommended guidelines (which you can find in A Guide to Financial Freedom) the truth is that your family’s own personal income, necessities, priorities, and lifestyle will play a large part in how this money is divided.
Notice that I said this money is divided.
Discretionary spending comes after all your obligations are met. You cannot allocate money into these categories that goes beyond your income. When determining your discretionary spending you’ll need to use both common sense and self-control. For example, you’ll need to budget enough money for food and gas to get to work before you allocate spending and entertainment money.
It’s discretionary in that you use your own discretion to determine the amount, but for a budget to work, you’ll have to budget discreetly. Here’s our example:
Sample Budget
Pay Period 1 Pay Period 2
Total Income: 2000.00 Total Income: 2000.00
Tithe: 230.00 Tithe: 230.00
1770.00 1770.00
Savings: 100.00 Savings: 100.00
1670.00 1670.00
Mortgage: 900.00 Debt Repayment: 100.00
770.00 1570.00
House Insurance 100.00 Car Payment 300.00
670.00 1270.00
Food 200.00 Car Insurance 100.00
470.00 1170.00
Gas 100.00 Property Taxes 100.00
370.00 1070.00
Household 75.00 Heat 100.00
295.00 970.00
Medical 100.00 Water/Sewer/Garbage 150.00
195.00 820.00
Clothing 100.00 Electricity 100.00
95.00 720.00
Spending/Enter. 50.00 Telephone 50.00
45.00 670.00
Cable 45.00 Food 200.00
470.00
Gas 100.00
370.00
Medical 100.00
270.00
Clothing 100.00
170.00
Household 100.00
70.00
Spending 50.00
Remaining 20.00
Looking at our sample budget, you may have noticed we have not included the cost of internet or cell phones among our list of expenses. This is because there was no leftover money to pay for these expenses. As we were thinking about this, I wanted to use this as an example of the choices that will need to be made when you’re living on a budget.
When you get right down to it, internet and cell phones are not necessities. You can live without them. When you’re living on a budget, you will have to make choices about what things you choose to eliminate and where you choose to make adjustments in your budget to pay for things you don’t want to eliminate. You need to be prayerfully creative.
Some ideas of how to work these costs into your budget might be: bundling your internet, cable, and telephone and using the $95 budgeted for cable and telephone to pay for these expenses. You might want to reduce your spending or clothing budget to cover these costs. Perhaps you could use switch to a pay-as-you go cell phone that costs less than the $20 a month you have leftover. The point is that these are the types of options and choices you will have to make and consider.
Another thing you may notice is that the spending/entertainment allowance is very small. This is to illustrate the point that no Christian should be spending excessive amounts on spending and entertainment while they have outstanding debts. The first priority needs to be debt repayment, and then the spending/entertainment allotment can increase. In this case, there is $400 a month set aside for debt repayment. Can you see the potential that will be available when that amount is freed up? But first things first, we must eliminate our debt then we have the freedom to be slightly more relaxed in our spending. Our family did it, and so can you!
