How to Manage Family Finance

By Charlotte

Experience has shown that the key to a happy family life is the proper management of family finances. Finances can either boost or destroy a marriage if not well handled. That is why it is advisable for any family to manage her finances properly as it can help provide security and promote family wellbeing. The responsibility to manage family finances should be shared between husband and wife in a trust worthy manner and in sincerity. A budget is so crucial at this point in time as it helps you determine what to do and when as it provides a real, planned and easily understood breakdown of how much money is incoming and how much as out-going. A budget is created using a spreadsheet and it helps you prioritize your spending and reduce spending on luxuries. At this point in time, it is important to first of all make a personal budget or home budget to allocate future personal income towards future expenditures, savings and repayment of debts. When drawing up a personal budget, take past expenses and debts into consideration. It is but appropriate that before one talks about financial management in the family, we should first look at those things which causes family financial problems.

Causes of family financial problems.

- Research shows that most financial problems are caused by non-financial, behavior problems which include; materialism, preoccupying yourself with protecting your social image, controlling others with the use of money and buying anything you see.

- People’s emotions can push them into financial problems like wanting to satisfy someone but you don’t have available cash, this pushes you to incur a debt because you want to meet up.

- Also personality preservation causes others to find themselves in financial problems. If one has a carefree wife who does not see any need for making a budget for the household but the husband is one who prepares a monthly budget, both may always find themselves in a difficult situation of controlling and sharing financial responsibilities.

- Attitude can influence financial behavior in people and this can be determined by your childhood behavior. Feelings like fear, guilt, control or abandonment can be instigated by money. If one’s spouse grew up in an affluent family and as a consequence does not understand the need for making a budget and save, it will be difficult to change that person’s attitude.

- Factors such as poor communication, manipulation, disrespect, selfishness, mistrust, ill-defined roles have been identified by researchers to be factors that affect and cause financial insecurity.

From the above financial management problems identified by researchers, they too have brought forth recommendations on how to manage family finances more efficiently and effectively. These recommendations are examined below.

Necessary steps to take in order to manage family finances

  1. Choose your objectives together and develop a budget plan to attain them together. In some families, one partner is selected to take care of the family while for others, it is shared. But no matter what, no two families are the same. Choose what suits your case. If you are going in for a team strategy, it therefore means there is no one-man decision making.
  2. Be honest about your finances. Honesty most often comes in before marriage and remains during the marriage.
  3. Cultivate the habit of developing a budget plan. To have an idea where your money is going to, it is important for there to be a budget plan. The budget plan can either be personal budget or a monthly budget and it is the ultimate financial management strategy as it brings about order in the house and cuts down on unwanted expenses. Once the budget plan is in place, the couple should work as a team to stay within the budget limits.
  4. Organize your accounts especially the dual-income families. There are several types of arrangements which can be done such as joint accounts, where money is jointly put by both partners in it. There is also a separate account where partners control but they assign bills to each other based on the level of income. The separate account option gives each person autonomy. And there is yet another option where couples may decide to choose both methods, with a joint account for shared expenditures for example mortgage, groceries and separate accounts for individual expenses such as clothing. So it is advisable to try these different options and choose the one which best suits your family situation before embarking on it.
  5. For all major purchases, consult each other. Set a limit on the amounts on major purchases since each one may have a contrary view. You can agree on an amount that major purchases can be made without consulting one another all the time for example $500. In case one digresses from the agreement, he or she should endeavor to open up to the other partner about it.
  6. Communication should be done regularly as this enables discussions on financial issues to be comprehensive and not only comprise of a monthly budget evaluation, but also an appraisal of the progress towards achieving long-term financial management goals.
  7. Set challenging yet attainable goals. The goals should not cause so much hardship in your financial life if not you might be discouraged and you might abandon it. Choose goals which requires minimal sacrifice and also follow up for proper implementation.
  8. Do not make it a habit of always including wants in your personal budget or monthly budget. Enjoyable things in life are always desired by everyone and one always likes to set aside money for that, but some of these things can be eliminated from your plan without much pain. You should consider your personal/monthly budget as a financial garden, plan it neatly, and weed it frequently as this will guarantee best modes of financial management.
  9. Preserve at least one separate credit card in your own name because each partner has his/her own needs and at one time or another, one might find him/herself in financial difficulties. At this point in time, each individual needs his own credit as it will be easier and faster to obtain credit with your own card.
  10. Change financial management behavior. This can be done by managing your money with a written monthly budget be it a personal budget or family budget. You can further do so by defining each spouse’s financial responsibilities and by making purchases that are appropriate to your income level. Also keeping expenditure constant even if the income is increasing and give family members allowance to use as thy choose without being accountable to anyone as this will inculcate in them financial management skills.
  11. Try to understand each other as everyone has different goals and principles which influences his/her view of using money. Try to also understand the financial management rules that existed in your spouse’s family of origin and see how they affect his or her present financial management behavior.
  12. Learn to communicate lovingly about your family financial management patterns with your spouse. Assess your family financial goals and choose the ones you want to change and the ones you will like to maintain.
  13. Further, take into consideration your spending habits and prioritize spending.
  14. You can also plan a family activity on the financial management of the family finances with children. This will build in them the idea of personal budgeting and they will control their expenditure and encourage savings.
  15. You can cut down on your expenditure by making a market list and sticking on it, also expenditure can be cut by not carrying along credit cards or checkbooks. Also learn to buy in bulk.
  16. Institute a maximum amount of money each spouse can spend before consulting the other. The limit will depend on the life-stage of the couple.
  17. Calculate the indirect cost associated with purchases and set up a monthly family budget plan for your family, to plan and save on grocery purchases.
  18. Reduce debts and interest payments with the use of an accelerated payment plan or fold-down plan for debt reduction. Eliminate the use of credit cards for things which are not needed.
  19. To manage finances effectively, it is good to come out with an emergency savings fund, if the family has just one bread winner, you might decide to put the fund for three months’ income but if both spouses are bread winners, you might decide to put six months’ income.
  20. It is always good to analyze life, property and medical insurance policies to be sure it fits your current conditions. 

But one can find himself in a constraint financial mode to still manage the family finances. The question is, how will he manage this?

In an attempt to answer this question, six steps have been advanced for the financial management of family finances when money gets tight. Being in a financially tight situation means one finds self frustrating because there are bills to pay, but the family does not have enough money to cover that cost. Reasonable changes can be made and money found in the family budget and the family moves ahead if the following points below are examined.

When found in a tight financial situation, what can one do to continuously manage the family finances?

     1.   Start with the numbers

Hardly will families really sit and examine their income statements, bills and expenditures, budgeting is always relegated to the background. But it is family budgeting that keeps finances on the right path. To prepare a monthly budget, first list all the income for the month, deduct all expenditures for all family members for one month.

     2.   Reduce expenses

When money is tight and the family is barely surviving, it is good to slash on expenditures. For instance, finding creative ways to substitute television or the use of computers like visiting game reserves, library e.t.c. Any money which is cut should be added to the bottom line of your budgeting worksheet.

     3.   Allocate funds

With the budget and the figures in front of you, it will be easy to distribute the income at hand to the multiplicity of expenditures and any monies left over, should be saved in a high-interest savings account. Program these deposits either directly in your paycheck or your bank account to check how much extra money you make.

   4.   Put in place restrictions

Coming out with a family budget with restrictions will limit spending without each other’s involvement. For instance, you can decide that purchases of more than $500 necessitate both partner’s consent. Also, each person in the family should receive a weekly allowance to be spent as need be. This makes it easier to trace the allocation of funds rather than various purchases.

   5.   Set up objectives as a family

After having set up the family budget, it is important to have a family discussion about the family financial objectives and how they can be attained. This can be achieved by making children to understand the basics of life and setting up a free, basic checking account for your child which helps them manage their deposits regularly.

6.   Prepare for the future

Once a monthly budget has been drawn and the family has a good understanding of their financial situation, it is good to be pre-emptive about the finances and move forward. Thanks to the many online money management programs existing today like Mint and Vertex42, money information can be traced automatically, since budgets need to be fresh and flexible in order for it to be effective. Once a budget plan has been made and is followed, it improves financial management, re-establishes confidence amongst spouses and may generate new ideas for adding income to the mix.

With all these financial management methods proposed above, the question now is how does one plan a budget he can really stick to? To better understand how to stick to a particular budget plan, it is important a study on the various budget plans is carried out so that people should know which one to use and why.

Making a budget plan

1.   Be realistic in your income and expenditures

This you can do by listing all what has been spent in the last three months as writing the incomes and expenditures from one month ago will not give you a definite picture of what you need to know. Since you want your budget plan to be truthful and precise, you must be honest to yourself and don’t leave anything out. This will enable you to follow strictly your family budget drawn up.

 2.    Make use of a personalized Plan

Various types of budget plans and spending plans do exist. Testing and choosing the right one for your family is very important. Some of them include;

  1. The 50/30/20 rule: with this rule, spending habit is broken down into three viz. based on one’s income, 50% is allocated to necessary expenditures like rent, food; 30% assigned for unnecessary expenditures like internet, cell phone and 20% is used for the rest like debt payment, retirement benefit, saving.
  2. Budget for fixed and variable expenses. This method divides your budget into two; fixed and variable expenses and it is only the value of the fixed expenses which can be lowered.
  3. Bare bones budget. This type of budget is based on your lowest monthly income. This type of plan is best for those who are self-employed or who carry out a commission-based job. With this, you are called upon to create a budget plan based on absolute necessities to survive.
  4. Find a way to trace or track your budget.

After choosing a particular budget plan, it is important you look for a means you will track everything you do each month. Some options available are;

-       Mint.com, web-based service and mobile app

-       Microsoft’s free monthly budget templates which easily downloadable.

When you discover the budget plan suitable for you, try to stick to it even if it does not work for the first month because it takes time to create new spending habits. With time, as your life evolves, you may want to try something new because the old budget plan does not work any longer for you.

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