For many families, the spring to-do list is laser-focused on more time spent in the garden and less time spent in front of the refrigerator. But there’s another critical place to spend time that far too many families and retirees avoid: crunching a family budget.
Most don’t. Nearly 6 in 10 Americans say they don’t track spending at all — and 2 in 5 say they have never had a budget, according to a 2019 report from the Certified Financial Planner Board of Standards. But amid the uncertainty of a COVID-19 world (or even a post-COVID-19 world), it may be more important than ever, in 2022, to establish a budget, say nine certified financial planners contacted by AARP.
How to do it? By taking the time to sit down with your spouse and crunch the numbers. Even then, it shouldn’t be drudgery. Think of it more as an opportunity to plan for the stuff you want, both before retirement and during it. Here’s what experts say are the 12 most important steps in pulling together a family budget this year.
1. Look back — but not too hard
Although it’s critical to stop and look at how you — and your family — spent your money last year, it’s equally critical not to beat yourself up by overstudying it. “You don’t want to demotivate yourself from making any meaningful changes in 2022,” says Kristin Pugh, a certified financial planner (CFP) in Atlanta. Too often, “Family budgeting is an exercise in beating yourself up — or your partner — for the bad things that happened in the past,” says Nick Nauta, a CFP in Lansing, Michigan. But whatever happened last year is done — so refocus this year on moving forward.
2. Know what you want
Sometimes, folks crunch budgets but fail to ask themselves the most important question of all: What do I want? It’s best to focus your spending on areas that bring joy or value to your life and eliminate the rest when possible, says Justin Rucci, a CFP in Tustin, California. Before even starting to make that annual budget, it’s a smart idea to have a conversation with yourself — and your spouse or partner — that not only looks at what’s coming in and what’s going out, but how and where you really want to spend it, Nauta says.
3. Know yourself
Nobody knows you better than yourself. So when you’re figuring out your budget for the next year, it’s important to factor in your past behaviors. In other words, says Pugh, if you know that 70 percent of the food that you consumed last year was in restaurants, don’t suddenly slash it to zero in 2022. It’s better, she suggests, to try to cut back by 10 percent or 20 percent, so that your expectations can better match with your likely actions. “Build in small changes,” she says. Those are much easier and make it much more likely that you will stick with your budget.
4. Acknowledge values
In the end, couples don’t fight about money, but about their individual needs to have their core values respected and their needs met — including their emotional needs, says Amy Jo Lauber, a CFP in West Seneca, New York. For CFP Nauta’s family, for example, he is very big on family experiences and prefers to budget lots of money for family vacations. But his wife is very big on home improvements, so they also establish a substantial home improvement fund each year, he says.