Every family member has to work together to develop a plan to handle their finances, individually and as a family. Families always think they need more money, but they really only need more discipline. Discipline will help them achieve goals so that when their get more money they manage it well and make it last longer.
Effective money management is solely based on how a family spends their money and lives their lives. Money management should include setting short and long-term financial goals. Families should plan for their future such as retirement, college for the kids, purchasing a home, etc. Many times families are so consumed with living day to day or paycheck to paycheck they can't worry about their future but that is the main reason families stay stuck in the same rut. Here are 5 ways to better manage your family finances.
1. Create a budget - First create a household budget or spending plan that includes involves each family member. A budget will show what you earn, what you spend and what you owe. This will help you see right away what areas you need to reduce expenses and where most of your money is being spent.
Hold family meeting to discuss finances and be honest about your financial situation. Many times parents live above their means just so their children are not aware of their financial situation – this is a "no-no".
If you don't know the exact amount spent on a particular item write down your best estimate. If an item fluctuates and ranges from month to month take the highest amount paid thus far and use that same amount in your budget. Buy items on sale and buy only needs. Buy wants periodically after starting short-term goals.
2. Begin saving - Set financial goals with a specific dollar amount and target date for each goal such as: save $1,000 by December 2012. Take each dollar amount associated with a goal and divide by the number of months to reach the target date. This will show you how much money you need to save each month to reach the goal.
Develop short-term goals that can be achieved in 3 to 12 months. Long-term goals are set and should be achieved over a period of time such as 3 to 5 years. For a family the first goal should be to create an emergency fund.
The emergency fund should be large enough to cover household bills and expenses for 3 to 6 months. This will eliminate fights with your spouse or partner and the children as well as prevent using a credit card for unexpected emergencies. Balance your checkbooks, monthly bank statements and credit card statements with monthly receipts to make sure no errors appear on statements on with your bank accounts.
3. Reduce debt - Create a debt repayment plan to pay off all debts. Set a target date for each debt including interest paid, monthly payment, total amount owed and if any bills are late. Start paying the smallest debt first then work your way up to the largest debt. Use the money paid for one bill and apply towards the second bill and continue this until all debts are paid.
4. Educate yourself - Talk to other families who have been successful in managing their finances or read books on family finances such as Family Finances the Essential Guide for Parents by Ann Douglas, Personal & Family Finance Workbook by Craig Israelsen, America's Cheapest Family Gets You Right on the Money by Steve Economides, Your Military Family Network by Military Family Network.
5. Plan for the future – make sure you have health, life and disability insurance. If your job doesn't offer these develop a plan so you can afford to buy them to protect you and your family if a tragic event occurs that affects your finances.
Budgets should be revised often when a specific event occurs such as: promotion, raise, additional recurring expenses, birth of a child, marriage, divorce, etc. Compare your budget with the financial goals set to ensure everyone is on track to meeting the goals.
