Your Family’s Budget Manager

Big-name talk show financial planners proclaim, “Run your family like a business!” In following their advice, it is best to take clues from common problems and then adapt techniques from small business accounting.

Learn from the ugly “before” pictures

“Draw practical conclusions from data about how families fall apart,” Jennifer Belknap, a San Diego financial adviser, begins. Money is the #1 source of fights between couples. In most cases, neither partner has an accurate idea of how much money the couple actually has or how they spend it.

Unfortunately, the vast majority of American families do not plan and manage their finances. They pay bills as they arrive or when they can. Most families do not anticipate income and expenses, and many families cannot give accurate facts about how much they pay for food, utilities and other essentials. Most families do not reconcile their checkbooks or track their “discretionary” spending. The end result? Most families live on the brink of financial disaster.

To avoid the disaster and get your family’s finances in order, follow these six significant tips from professional accountants:

1. Appoint a Family Budget Manager

Belknap reports, “In more than 90 percent of families I counsel, the wife manages the money and the whole family is just fine with that arrangement. Sadly, though,” Belknap continues, “Mom does all the management in her head and all the math on post-its in her purse.” For efficient family financing, one person absolutely must take charge of budget management, computerizing it and keeping track of it. If finances are tight that means tracking every day’s expenditures as they happen. The budget manager must forecast, allocate, monitor, distribute and account for every penny that comes into or goes out of the household. This way, an up-to-date budget is always available, should a family member have any questions or concerns.

2. Develop a Family Budget in a Collaborative Process

Although one person has complete control of the budget, every family member should participate in its formation. Teach your children to take responsibility for their school and sports expenses, learning to predict what they will need and when they will need it. Husbands should take responsibility for automotive and home maintenance costs, similarly predicting what the car, house, and yard will require. The whole family should make choices about vacations, entertainment, and other discretionary spending. Once your family reaches consensus, the budget manager writes it down and manages the money more or less to match the family’s agreement.

3. Forecast Income and Expenses

At the end of each month, take time to reconcile all the family’s accounts and use current figures to forecast where the money will go in the upcoming month. Take the time to find out where you are spending too much money–usually fast food, school and work lunches, and random trips to Starbuck’s. Taking control of food and beverages can save your family more than $100 per month. If you haven’t started couponing, now would be a good time to do so.

4. Categorize, Monitor and Control Expenses

There are two kinds of expenses: fixed and variable. Fixed costs typically are the non-negotiable monthly expenses, such as home mortgage, the car payment and car insurance. Variable expenses include the water, utilities, and telecommunications bills. While these must be paid, your family can radically decrease the amount by taking simple measures such as turning the lights off when you leave a room.

5. Make Savings a Priority

Families should put 10 percent of each paycheck directly into a savings account. A savings account protects the family against emergencies and the need for short-term loans. It is advisable to have $1,000 in an emergency fund and 6-months’ worth of salary in a certificate of deposit.

6. Use Credit Wisely

You can check your credit reports once each year at no cost. By taking advantage of that opportunity and using the review to clean up and amend your credit reports, you will gain complete control over your family budget. In addition, your credit scores automatically and inevitably will increase.

Allocate about six months for your family to adjust to the new budget. In the meantime, emphasize that the budget does not change–once you have a plan, no amount of whining will alter it. Your family will thank you as you come to enjoy greater financial security.

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