How To Budget Money for a Family of Five

Before we talk about how to budget for a family of five, I’d like to share my approach to budgeting.

As a financial advisor and coach, I’ve noticed that there are some misconceptions about budgeting.

Written By Tiffany Woodfield, Financial Coach, TEP®, CRPC®, CIM®

How I Approach Budgeting

Budgeting has a bad rap! Why? Because, in many cases, budgeting feels so restrictive that people “fall off the wagon.”

But budgeting shouldn’t feel restrictive. Budgeting is about learning how to feel empowered when you spend.  I achieve this by setting aside money for the things that I really want instead of just impulse spending. When I budget for something that I want, it feels great when I buy it!

Growing up, my mom was always someone who couldn’t resist a sale.

But I started to notice that this can be a trap. My mom would always focus on how much she was saving rather than if she really wanted the item. 

Her closet would be full of things that were a “great deal” but weren’t things she loved. So what was the result? She felt guilty about her purchases because they weren’t really things that she wanted. I followed this pattern when I was younger, spending mindlessly, and then felt guilty.  

But then I learned about budgeting. And it really did change things!

Creating a budget made me realize I could spend on something I loved and not feel guilty. If it meant I had to wait because the item cost more than I had, then I would wait.  

The feeling I had when I got the item was pure joy because I knew two things: I loved it and had set aside money for it! 

Now, how can you apply this to your family life and budgeting for your family of five?

How to Budget for a Family of Five So It Doesn’t Feel Restrictive

First, it’s crucial to identify what you want to do with your family, but that may feel out of reach financially. 

Instead of saying, “We can’t do that,” you might say, “How can we do that?” If you want to take the family on a big trip but don’t have the money for it right now, figure out the cost and how long it will take to save for it. You don’t have to forgo doing fun things if you budget for them well in advance.

In addition, using the 50-30-20 rule is brilliant when you’re budgeting for a family.

I’ve written a whole blog post about the 50-30-20 rule. But the key here is to spend 50% of your household income on needs, 30% on wants, and 20% on saving and debt repayment. If you already have a fully funded emergency fund and are debt-free, then 20% will go towards investing.  

In some cases, you may need to change the percentages. If you live in a place where rent or mortgages are high, you may need to spend 35% or even 40% of your income on “Needs.” 

Just make sure that you place your family’s values and priorities at the top of your mind when creating your budget.

And ALWAYS include a bucket for “Wants,” i.e. discretionary spending. Make sure you spend a little something on yourself each month so that you can nurture yourself and your family. 

What’s the best way to allocate funds for savings and investments?

For a family of 5, creating a budget and tracking your spending is essential.

To Start:

1. Look at the money you have coming in each month.
2. Look at your monthly expenses and categorize them into fixed and variable expenses. 
3. Determine how much money you have left over each month.
4. Apply one of the popular budgeting techniques, such as the 50/30/20 method of budgeting.  This method allows you to put 50 % of your income towards needs, 30% towards wants, and 20% towards savings and repayment of debt. When you use the 50/30/20 rule, you’ll use 20% of your income towards saving and investing. 
5. Review your budget frequently. You may want to consider setting up a day once per week that you review your budget to ensure that you’re on track. 

How much should a family of five budget for groceries each month?

The latest research shows that the average adult will spend about $350 monthly on groceries. 

With a family of five, this would be around $1600- $1700.  Every family situation is different, so to get the most accurate picture, track how much you spend on groceries over a few months.  

According to Canada’s 2023 Food Price Report 2023, an “average family of four” with two adults and two teenage kids will spend $16,288.41 per year on food. This is about $1350 per month for food or $330.50 per person per month. If your children are young, the expenditure will be less. 

So, for a family of five, it would be wise to budget at least $1500 per month for groceries.

If this is too much for your family, here are some ways to cut costs that you could consider:

1. Substitute lower-cost proteins like beans and lentils for some meals.
2. Buy from places like Costco, as bulk purchases save money over the course of a year. In particular, buy your protein from Costco, as this will add up. 
3. Make a meal plan so you don’t have any food waste. 
4. Make “everything” meals where you use up all the random things in the fridge so it doesn’t go to waste. 
5. Eat plenty of fruits and vegetables as they’ll give you plenty of nutrition, i.e. bang for your buck! 
6. Switch to water instead of juices, sodas, etc, as this can provide a significant cost saving in the long term. 
7. Eat delicious but low-cost carbs like rice for lunch or dinner. 

How do we plan for irregular expenses, like holidays or medical emergencies?

When creating a budget, you’ll want a buffer of three to six months of living expenses in an emergency fund. 

To budget for holidays, get started at the beginning of the year. In January, determine your holiday goal and then research the costs.  

Setting aside monthly money means you are more likely to take the trip and won’t have to use credit to finance it! 

How can we include our children in the budgeting process?

Including children in the budgeting process is an excellent learning opportunity, and you can start this when your kids are still young. 

Imagine how helpful it would have been if your parents had done this with you!

Once you have created the foundation for your budget and understand how much money comes in and goes out each month, have a family meeting. Share what you have learned and explain why you are budgeting.  

Creating a positive money mindset early on leads to financial success in the future. 

For example, you can say, “We are making a budget so we can know where our money goes and choose to spend on doing the things we enjoy.  Having a budget helps us to feel empowered and confident in making decisions around money.”

This creates a good starting point to discuss budgeting and money with your kids. But, if your kids are into it, you can also create rewards and make it fun to have them track what they have spent their allowance on. 

Give rewards for saving AND for tracking their spending. Why? Because spending on the right things teaches abundance!

How often should we review and adjust our family budget?

In the beginning, you need to review your family budget every month. 

Once you notice your estimates aren’t changing as much, you can start to review every three months.  Keep in mind that in the first year, there are more “flexible” expenses you may not have considered until you have done this process for an entire year, so keep an eye on it.  

What are some common mistakes families make in budgeting?

The most common mistakes families make when budgeting are as follows:

• Not having everyone on the same page.
• Not sticking to the budget.
• Forgetting to review the budget.
• Shaming yourself or others. Remember, change takes time!
• Not appreciating the importance of creating a positive money mindset.
• Not seeing that budgeting is an opportunity and not something you do simply because you don’t have enough. 

A family can avoid these mistakes by creating a routine where it is on the calendar and every month you review your budget.  

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