One last question - my wife think 500 bucks is what we should allot for groceries. That seems high to me . . . but I don't buy the stuff so I don't have room to talk. I know we tend to buy name brands (her excuse? She had coupons) and convenience foods, and neatly packaged foods (again . . . on sale according to her). I think by it NEVER. Don't even get in the habit of buying it. Acquiring a taste for it.
If I recall correctly your family includes three daughters. If that's the case, then I think $500 per month for groceries is totally reasonable. I've seen couples budget that much, though admittedly many, including myself, would counsel that $500 for two people is two high. I often see it recommended that a couple (two people) target $200 to $250 per month. Especially since the $500 includes "toilet paper, shampoo, lotion, female products etc and gas for our vehicles," I would say that you/your wife are already doing very well in that category.