Wednesday, December 5, 2012

Family Finances

Managing your family's finances can be a tough job. You have to know how much you make, how much you can spend, when and how to pay bills, and manage to save for a rainy day. But it's not as daunting as it may seem. Here's a quick financial plan for you, to help manage your finances better and keep your family afloat.

1. Create a budget. The simplest thing, yet most people never do it. Of those who do attempt a budget, it is rarely a COMPLETE budget. A budget is not a list of bills you pay every month. A budget is not a list of things you want to buy come payday. A budget is a blueprint for all of your finances. It should contain ALL expense, not just bills. Here is an example to help you get started. This worksheet is also included in the Household Notebook post.

2. Stick to the budget. This is the hard part. If your budget is not realistic, you will never stick to it. If you find you have trouble sticking to your budget, move to a cash-envelope system, in which you use cash for things like food, clothing, and all non-necessity bills. It's harder to hand over cash, and with a finite amount of cash in hand, you will closely watch your purchases.

3. Save, save, save! You have to be prepared for the future. You should have savings set aside for home repairs, car maintenance, new car purchase, clothing, and other big ticket expense (like Christmas shopping or a new baby). If you aren't prepared for big expenses, you will rely on credit and debt, starting a cycle of dependency. Save for purchases, save for the future.

4. Avoid debt. Pay in cash whenever possible. You will save hundreds and thousands of dollars in interest, avoid payments that can last for years, and actually OWN your stuff. When you finance a car, you don't own it, the finance company does. Should you stop making payments, they will take their car back. If you had paid cash for the car, there is no monthly payment or threat of having it repossessed. Start a savings fund for anything you plan to purchase that is considered "big ticket" in your household. This will vary depending on income level. Instead of going to a rent-to-own place or financing your new couch, make the payment to yourself for a few months and save up to pay in cash. This will reduce your monthly expenses, and should a major emergency come up, you'll be glad you have that $500 in savings instead of a nice leather sofa-and its payment.

5. Plan ahead. Invest, start a college fund for your child, add money to a retirement account, or funnel extra cash to your mortgage payment. The more you plan and prepare now, the less shocked, and broke, you will be in the future.

6. Seek help. If you or your spouse have a spending problem, too much debt, not enough income, or you'd just like to better manage your finances, seek help. Dave Ramsey is an excellent teacher, Suze Orman can show you a few things, and Robert Kiyosaki has several books out. You don't have to spend tons of money on a financial adviser, you can get free help right from your computer.

Once you have a working budget, then we can work to reduce your expenses. There are tons of ways to reduce your spending on everyday things like food, clothing, gifts, cell phone plans, utilities, and so much more! We'll explore these later, and help you get a handle on your family finances.