The first step to making a family budget is to get a grasp on where your money is going each month. To do this, keep a detailed log of income and expenses, making sure to include not only the big transactions, like your paycheck and your mortgage, but also small ones, like interest from a savings account and the cost of your morning latte.
Once you've taken a good hard look at how you spend your money, you can put your expenses into two piles -- fixed and discretionary.
- Fixed expenses are costs that you expect to pay each month, like groceries, utilities and your mortgage payment. Depending on how old your children are, these costs could also include diapers, childcare and new clothing for your ever-expanding toddler, for example.
- Discretionary expenses are less predictable and often less necessary. They include things like trips to the movies, beach vacations and taking the kids out for pizza on Friday nights. Families might also put birthday parties, video games and summer camps into this category.