Family finance management refers to the process of managing the financial needs of a family unit. Including but not limited to creating and sticking to a budget, tracking expenses, setting financial goals, and making financial decisions that align with the family’s priorities. Essential money management is about meeting your family’s everyday expenses, handling unexpected bills, and saving for the future. Money management can put you in control of your money, which helps you reduce stress and feel more secure. It lets you enjoy your family life rather than worrying about your finances.
Family monetary management is essential to keeping a stable financial household. Financial planning and financial stability will also help prevent economic crises. To have better control over your family finances, you need first to create a budget to examine which household expenses could be reduced so that you can set goals to limit your spending. Next, you should set debt reduction and savings goals. Finally, after examining your expense reduction, debt reduction, and savings purposes, you will be prepared to develop an investing plan and a plan for the future. Finally, keeping accountable to your family and yourself through communication and constant reevaluation of your financial goals is essential to maintain a healthy financial management system in your family.
Understanding that family finance management is something that only some excel at. I’m going to lift my hand first here and say I suck at it most days, but I want to learn and grow, and this article shows many options on how to get your family finances on track and help your family achieve that much-desired financial freedom. Remember, it takes time and lots and lots of practice, patience and doing the right thing each step of the way.
Family Finance Management includes some of the points listed below. This article is just a small overview of what a family can do to manage their finances better and increase monetary wisdom to help relieve some stress when it comes to financial management. By no means do I have all of this on track in my own life but I definitely am in the process of learning and growing each step of the way. As Dave Ramsey says’ Baby Steps first !
Creating a budget is a foundational step in family finance management. It involves tracking income and expenses and creating a plan for distributing funds based on the family’s priorities and financial goals. It is essential to have a plan for how to distribute your income to cover your expenses. Creating a realistic budget that considers all your costs, including fixed expenses like rent or mortgage payments and variable expenses like groceries and entertainment, is vital. A budget can help you stay on track with your spending and avoid overspending, which leads to debt.
Some of the rewards of having a budget include:
- You are spending your money wisely on the things you must have (needs/essentials).
- Save money for the things you like but can live without (wants).
- Save money for your family’s future (future expenses or goals).
- Set aside money for unforeseen expenses (emergency fund).
Creating a Budget: Creating a budget will allow you to see your current financial status and let you know where to cut back expenses.
Step1. Organize all your financial information. You will need the following: (best practice is to look back six months to get better averages for your income and expense)
- bank statements
- monthly bills
- information about monthly and any additional income
Step 2. Figure out the average monthly net (take-home) income. (don’t include unexpected income, only consistent income from a salary, hourly or project-based work)
Step 3. Figure out average monthly expenses. Combine ALL monthly costs, including basic needs (food, clothing, shelter, and transportation) and other spending (entertainment, donations, and investments). Pay attention to the amount you spend on fixed expenses (such as the mortgage payment) versus your variable costs (eating out).
The following are just some of the essentials that need to be added to your budget:
- Food-groceries
- Housing
- Utilities- like gas, electricity, phone, and water
- Transportation (car, gas, insurance)
- Credit card payments
- Family Medical Needs
The following is a list of wants or “other” expenses that could be included in your budget.
- Childcare (could be under essentials depending on your work situation)
- Clothing
- Entertainment
- Vacations/ birthdays/ holidays
- Snacks/ going out to eat.
Step 4. Figure out the monthly balance by subtracting monthly expenses from monthly income. Doing this will tell you how much money you should have at the month’s end to save. If you have a negative monthly balance (spending more than you earn), you need to reduce expenses.
Step 5. Examine costs to see where you can reduce spending. Pay close attention to the unnecessary items (entertainment, eating out, expensive gifts, vacation expenses).
Step 6. Create a budget with monthly income and a plan to allocate your payment to pay off all your expenses, as well as set aside money for savings and some reward spending like clothes or going out.
Once you set your budget goals, you must keep tracking your monthly expenses (I recommend checking in each paycheck or monthly at the minimum to see how you are doing).
Saving money is an integral part of family finance management. Saving money involves setting aside money for emergencies, retirement, other long-term goals, or unexpected expenses that can help you avoid debt.
My husband is great at saving. His first thought when he gets his pay is to pay the bills, then what is left over I save.
Snow Penariu
My husband is great at saving. His first thought when he gets his pay is to pay the bills, then what is left over I save. On the other hand, my mentality has always been about how to spend the money I earn because I think about paying myself first (trying to change this lousy mentality). My husband’s mentality always gets him a good savings bucket, while mine has made me live paycheck to paycheck. So to hack your spending mentality and start saving, you need to always look for ways to keep more of your money, not ways to spend more.
Here are some tips for saving:
- Review your spending. Figure out whether you are saving as much as you can.
- Some questions to ask yourself to help you evaluate if you can put more into savings:
- Could you spend less on certain items?
- Are there expense that you can cut so you can save that money instead?
- Do you have any high-interest credit cards or other loans?
- Could you immediately pay this debt off and investigate more suitable credit or loan options?
- Build a savings buffer (an emergency fund). Before you start saving for your wants, keeping extra savings for financial emergencies is essential. Keeping about three months’ worth of expenses in an emergency fund is a good idea.
- Decide what are your saving goals and, set a time limit for that goal, and be realistic with that goal. For example, if you can only save 100 a month, you can’t expect to save 10,000 in a year, but you can reasonably save about 1,000 a year, give or take a bit.
- The clever idea is to open a savings account connected to your primary checking so that you can auto-transfer money automatically monthly for savings. Another option is having your savings come out of your paycheck right into your savings account directly from your employer if they provide that option.
Investing can be a way to grow your money over time.
You may invest in stocks, bonds, mutual funds, or other investment options depending on your risk tolerance and financial goals. Another option is putting money aside into a business investment or business venture.
Managing debt is an essential part of family finance management. You are paying off high-interest debt, such as credit card balances, and managing other types of debt, such as student loans or mortgages. Consider merging your debt or negotiating with creditors to lower your interest rates to help you pay off debt faster.
Steps to manage your debt:
- Setting Debt Reduction Goals
- Lower credit card interest rates through debt consolidation
- Pay off small credit balances first so they do not accumulate interest rates.
- Pay off the loans or credit balances with the highest interest rate first.
- As you put aside every extra penny to pay down your debt, “snowball,” try to achieve the goal of not having more than 20% of debt compared to your take-home pay.
- The ideal goal is to be 100% debt-free, but making small attainable goals is critical to keep the momentum.
- Communicate with your spouse so you can create a plan and keep yourself accountable to paying off your outstanding debt.
Family finance management also involves thinking about the future and planning long-term goals, such as buying a home, paying for kids college, or saving for retirement. Creating a plan that considers your financial goals and priorities and makes decisions that help you achieve them is essential.
Establish an emergency savings fund of at least three months’ income. An ideal amount would be six months of monthly expenses.
An emergency fund can help you avoid future debt and provide financial security and flexibility.
Review medical, life, and property insurance policies to ensure they fit your circumstances. Adjust or remove those that you do not need.
Saving for Life Goals
- When you are ready to save for life goals, discuss these goals with your significant other and kids to make family, couple, and personal goals for saving.
- Have an open conversation about your savings goals, including saving for a house, retirement, and other large purchases like a car or boat. Ensure you agree that the asset or expense is worth saving for and that you decide on the amount needed. This communication will help coordinate your savings and investment efforts.
- Save for retirement. Couples should start planning for retirement as early as possible because, due to compound interest, money placed in a retirement fund at an early age will earn much more interest over its life than the same amount of money put in at a later age.
- Make sure to make every effort to increase your retirement savings, including seeking to max out your employer’s 401(k) match (if they have one), maxing out IRS limits for 401(k) savings, and regularly increasing your retirement savings amounts if you can fit it into the budget.
- Plan for child/children’s educational expenses. If you plan to fund part or all of your child’s higher education, it is best to start saving early. Start by investigating options like 529 savings plans with unique student tax benefits. If you have little time before your child leaves for school, look into government loans and grants and your option to earn federal student aid.
Effective family finance management requires communication and collaboration among family members.
It’s essential for everyone in the family to be on the same page regarding financial goals and priorities and to work together to make decisions that benefit the entire family. This may involve regular family meetings to discuss finances or working with a financial advisor to create a financial plan that works for everyone.
The easiest way to organize family goals is to establish what you are trying to achieve financially. If I have a number to aim for, I will hit that number. For example, when planning a family vacation, the ideal way of thinking is to come up with the cost and then save weekly or monthly to hit that goal not just hope that the vacation will pay for itself. Goal setting requires some planning and have some thoughtfulness behind my numbers but also action to get to that goal.
My husband always told me how much his family communicated about finances and was always discussing money and money management; however, my family was not so open with finances, and when we got married, it was a hard transition for me to start to be honest about my finances with him because I was used to how my family addressed it which was “not at all” or it will “pan out.” My husband has had to be patient with me when addressing financial questions since he was so good at it, and I was constantly struggling with talking about it. I have improved in discussing finances and financial goals in the past five years of marriage, but it’s still a work in progress.
Keep in mind that there are also many tools and resources available to help with family finance management. These may include budgeting apps, online financial calculators, and financial education resources.
Below is a short list of examples. Try a few of these apps and decide which works for you. Most are free or inexpensive to use or offer a trial period.
- Mint: Mint is a free budgeting app that lets you link your bank accounts, credit cards, and other financial accounts to track your spending and create a budget. The app provides personalized recommendations for how to save money and reach your financial goals. (I personal use and love this app).
- YNAB (You Need A Budget): YNAB is a budgeting app that focuses on helping you create and stick to a monthly budget. The app encourages you to allocate every dollar you earn to a specific budget category, such as rent or groceries, to help you stay on track with your spending.
- PocketGuard: PocketGuard is a budgeting app that helps you track your spending and create a budget. The app provides a “pocket” for your available funds and subtracts your bills and savings goals to help you see how much you have left to spend.
- Personal Capital: Personal Capital is a budgeting app that allows you to track your spending and investments in one place. The app provides a dashboard that shows your net worth, investment performance, and spending trends.
- Goodbudget: Goodbudget is a budgeting app that uses the envelope method to help you manage your spending. The app allows you to allocate funds to different categories, such as groceries or entertainment, and track your spending in each category.
These are just a few examples of popular budgeting apps, and many others are available. When selecting a budgeting app, consider your specific needs and preferences, such as whether you want a free or paid app, whether you prefer to link your accounts or manually enter transactions, and whether you want additional features such as investment tracking or financial education resources. It’s also a good idea to read reviews and compare the features and costs of different apps before deciding.
Family Finance Management is a vast topic and has many nuances. It takes time, energy, and motivation to do the right thing and build your family’s financial health. Make wise decisions and at least some of the steps listed in this article, and you will be a lot farther along than when you first started on this journey.
References:
https://raisingchildren.net.au/grown-ups/family-life/managing-money/managing-money
How to Manage Family Finances (with Pictures) – wikiHow. https://www.wikihow.com/Manage-Family-Finances
Managing Family Finances | mTek-Services. https://mtek-services.com/managing-family-finances/
10 New Budgeting Apps to Help You Save Money – NewlyCast. https://newlycast.com/10-new-budgeting-apps-to-help-you-save-money/