Creating a Budget That Works for You: 12 Tips for Managing Your Family Finances
Money management is perhaps one of the most elusive skills. Very few people are taught how to manage their finances at a tender age, yet it is a mandatory skill in adulthood. Inability to regulate your income often leads to negative emotions, such as inadequacy, frustration, guilt, envy and so forth.
It is never too late to acquire money management skills. Regardless of how much you earn, spending it wisely will always reap immediate benefits. In addition to setting your path to financial security, you will also have peace of mind.
Here are some tips on how to effectively manage your family finances.
Check your Current Status
Before anything else, quickly review your current money management skills. Are you putting any effort towards saving money? What is your net expenditure? Do you believe you can cut down on expenses?
Pay off your Debts
Having debt is a bother. It is also a significant barrier that can inhibit you from achieving your financial goals. For this reason, you must prioritize settling your debts.
The majority of debts originates from student loans and mortgages. Credit cards also contribute significantly to increasing personal debt.
It may sound cliché, but paying off debt is easier said than done. This is because honoring your repayment obligation may take a huge chunk of your income, forcing you to take another loan to cover the deficiency. If unchecked, this could turn into an unending cycle of lending.
Most people manage their debt is by making the minimum payments across all debt accounts. However, it is advisable to allocate a higher amount to one debt, preferably the biggest. This means that you will settle it faster and use the money in repaying the remaining debts.
Alternatively, you can opt for debt consolidation. This option allows you to reduce the amount of money you have to pay every month. If you have a good credit score, a consolidation loan can help with repaying your debts. Such loans usually have lower interests than standard variants. They are also structured in a way that doesn’t dent your personal budget.
Set your Financial Goals
The next step involving setting your financial goals. Ideally, you should write both short-term and long-term objectives. Short-term goals may include buying a car, moving to a bigger home, purchasing household items and so on. Long-term goals, on the other hand, may include investing in real estate assets, early retirement and so forth.
After penning down your objectives, arrange them according to necessity. The ones that you hold in high regard should obviously be the priority. Keep in mind that long-term goals require significantly more effort than short-term objectives. This means that you can handle both concurrently. For instance, you can start saving for early retirement while planning for your next holiday trip.
Create a Financial Plan
If you want to achieve the goals set above, having a financial plan is mandatory. A financial plan is essentially a roadmap detailing the steps you intend to take on your path to attain financial stability. Thus, it includes a summary of your expenses, your desired budget, goals and most importantly, a timeline with several milestones.
The benefits of sticking to your financial plan should become evident in just a few weeks. You will notice that your savings account is growing. Also, you are likely to have extra cash that can be useful in settling debts and covering for emergencies.
Similar to financial goals, your economic plan must have priorities.
Make a Budget
The foundation of money management is having a practical budget. A budget is a spending plan that allows you to distribute your finances in a way that will assist you in attaining your goals.
To get started with your budget, you have to keep track of your expenses. This means that you will need to calculate how much you are currently spending on:
- Household bills (rent, electricity, water, internet)
- Living costs (food)
- Financial products such as insurance
- Family and friends
- Commuting ( fuel and public transport)
- Recreational activities
After collating all your expenses, the next step is looking at the areas that you can afford to cut back on. For example, if your car is consuming too much fuel, you could exchange it for a more economical model or use public transport instead. You could also cut off unnecessary expenses such as holidays and weekend outings.
A budget is an invaluable asset for finance management because it helps prevent impulsive spending. Indeed, many people often find it hard to achieve their monetary goals because of frequently buying items that seem important at the money, although they are likely to be meaningless in the future.
If you have a partner, it is advisable to consult with them when creating a budget. This will not only ensure that both of you are ware and committed to achieving a specific goal, but it also
reduces the probability of friction arising from non-inclusion.
Change Your Habits
As mentioned above, improper use of credit cards can impede your efforts to achieving financial stability. Credit cards usually have high interest rates that may accumulate into huge debts within a short time. This could potentially lower your credit score, meaning that you won’t access loans in the future.
A practical way of avoiding the adverse impact of credit cards is using cash. With cash, you never have to worry about monthly debts and their corresponding interest rates. You could also avoid using such cards altogether.
Another habit that you should practice if you want to save money is using shopping lists. Like credit cards, impulsive shopping can also hamper your saving efforts. Lists, on the other hand, ensure that you only buy what is useful.
Look for Extra Sources of Income
You can always do with extra money, regardless of how much you make. The internet has several ways through which you can supplement the earnings from your 9 to 5 job. For instance, you can participate in online surveys, take quizzes and watch videos. This will earn you either a few dollars or gift coupons. If you have time, you can do more demanding (and higher paying) jobs such as blogging and online writing.
Capitalize on Incentives
When you spot an opportunity to save money, grab it with both hands. Nowadays, merchants offer several incentives that help you pay less for several items. For example, you should consider using coupons every time you come across one. If your favourite store offers a discount to members, registration should be a no-brainer.
Additionally, there are workplaces that offer plans to their employees. Such include group retirement plans, reduced tax incentives, health cover and so forth. If you are lucky to work in such a company, make the most of it!
Review Your Budget Constantly
As time goes on, the needs of your family change. This means that you have to constantly review your budget and make the necessary adjustments. For example, if your kids start attending school, you will need to allocate money for fees. Likewise, you will need to spend more on food as your children grow older.
Invest Your Savings
With time, your savings will eventually grow. At such a time, you must look for ways through which you can gain profit from the savings. For instance, you can invest in the securities market or any other investment of your choice. It is also important to allocate more money to your
pension. This guarantees you a comfortable lifestyle after retirement.
Once you deem your savings to be big enough to fund an investment, don’t hesitate to seek advice. Investment is a risky venture and you could certainly do with advice from an experienced head.
A good advisor will explain the risks involved in every type of investment. They will also help you in identifying the best investment to match your goals and your budget.
Although professional advisors are the best, they don’t always come cheap. Luckily, there are alternative methods through which you can learn how to manage your money. These include:
- Workshops and seminars – the internet has loads of affordable courses that offer advice on finance management. You could also attend workshops organized by trade unions, financial institutions, and employers.
- A mentor – if possible, you should consult a willing individual to assist you in creating and sticking to your budget. This is especially vital in the first few months of your money-saving journey.
- Family and friends – if you have a friend or a relative with good money management skills, consider asking for their help. Ask them what they did and which practices they had to ditch to get where they currently are.
As impossible as it may seem, achieving financial security is well within your limits. All it takes is proper planning and incredible self-discipline to ensure that you strictly adhere to that plan. There’s no denying that you will find it hard to make changes to the lifestyle you are accustomed to, but the rewards will certainly be worth the effort.