Creating a Household Budget: Average Monthly Expenses for Family of 5
Budgeting household expenses is a basic task, and yet it’s one that many families struggle to do properly. It’s a particularly challenging thing to do when money is tight.
At Addition Financial, one of the most common problems our members have is budgeting their money. We love working with them to help them work out a spending and saving plan that will help them pay for their current expenses and save for the future at the same time.
You can’t create a budget if you don’t first understand what goes into making one. It may help you to know that your household budget should break down into three main categories:
Let’s start with income.
Calculate Your Income
Your income should include only the income that you can rely upon every month. That may include:
Your salary or monthly income
Your spouse’s salary or monthly income
Alimony or child support payments
If you’re self-employed or your income fluctuates, you’ll need to use an estimate. We recommend averaging your monthly income for the most recent 12 months and using that figure. You can always adjust it if things change.
You should not include these things:
Occasional income from hobbies or part-time work
The goal is to predict, as precisely as possible, how much money you bring in each month.
Calculate Your Fixed Costs
The next step is to calculate your monthly fixed costs for your household. Fixed costs are costs that stay the same from month to month. They may include:
Your rent or mortgage payment
Your property taxes
Outgoing alimony or child support payments
Credit card payments
Some utilities (For example, if you pay a monthly fee for recycling that stays the same from month to month, you should include it with your fixed expenses.)
School tuition payments
Any fixed expense that you pay annually, semi-annually or quarterly should be divided to estimate the monthly cost. In other words, your quarterly property tax payment should be divided by three, and so on.
Calculate Your Variable Expenses
Once you’ve got your fixed expenses calculated, it’s time to look at your variable expenses. These should include:
Gas or oil
Keep in mind that some of these expenses may belong in the fixed category. For example, if your family has a plan for your mobile phones that includes unlimited data and stays the same every month, you can put it in with the rest of your fixed expenses.
Calculate Your Net Income
The final step to creating your household budget is to calculate your net income. You can figure it out by adding your total fixed and variable expenses and subtracting them from your monthly income.
If you’ve got a positive net income, that’s money you can use to pay off debt or save for a new car, a family vacation or college expenses. If your net income is negative, you’ll need to look for ways to trim your expenses to bring your spending in line with what you earn.
What Are the Average Monthly Expenses for a Family of 5?
It’s natural to wonder what the average monthly expenses are for families and if your family’s spending lines up with what other people spend. For this example, we’re going to assume you have a family of five with two adults and three children.
Let’s start with housing expenses. Obviously, these can vary widely depending on:
Where you live
Whether you rent or own
The square footage of your home or apartment
Here’s how some of the averages break down for a family of five:
The average rent for a two-bedroom apartment is $1,207
The average rent for a three-bedroom apartment is $1,529
The average monthly cost for a mortgaged home is $1,443, a number that includes the mortgage, property taxes and homeowner’s insurance.
The average family spends:
$622 on groceries per month with younger children
$821 on groceries per month with older children
You should also expect an average of:
$183 on electricity
$82 on natural gas
$40 on water
$12 to $20 on garbage/sewer/recycling
$100 on cable TV
$47 on internet service
If you own a very large house, you should expect your expenses to be higher than these averages.
Don’t get discouraged when working out your budget. If you’re overspending, there are plenty of things you can do to cut back on your expenses.
To learn more about how Addition Financial can help you manage your household expenses with a checking account, please click here now.