According to Harris Interactive’s 2013 Consumer Financial Literacy Survey, most people in the United States struggle to manage their family finances… a full 60% of adults don’t track their monthly spending. But managing family finance is not rocket science. Here are 5 tips that can make you a pro:
1) Income Must Exceed Expenses
In order to manage money wisely, you should have a good grasp of your monthly income and expenses. Sit down and list all your monthly expenses including cable TV, Cell phone, game subscriptions, Netflix, “whatever of the month club”, plus things like food, rent, insurance expenses (like car, Home Owners, Health and life) fuel, electricity, kids allowances, Tithe as well as mortgage payments and anything else you spend. Try to account for every single cent. After this, outline all your sources of income such as wages, consultancy fees, interest income, Social Security or (if you are really lucky) allowances from family trust funds. If your expenses exceed your income every month, you are heading in the wrong direction! You can use money management tools such as iBank, Quicken, or Mint.com Personal Finance to track your expenses.
2) Money Secrets Don’t Help
Managing family finance requires everyone to be on the same page, including children. Financial secrets will only make it harder for you to maintain your budget. By laying all your cards on the table you can be transparent and work together. Some people think it isn’t good for kids to have to worry about finances. But you’d be amazed at how perceptive and resilient children actually are. It is better to be open and honest with them. Often if you try to hide it they will be more worried than if you just tell them the truth. Of course you should emphasize that this is private information for the family only and they don’t need to blab your financial situation to the world. But by working together you can get through it. Once they understand that money is limited they will not be as persistent in asking for everything either.
3) They Don’t Call them Pros for Nothing
According to the Harris Interactive survey, 28% of adults wouldn’t seek professional help even when they were struggling financially. Instead, they would seek help and advice from family or friends. This may or may not be a good idea depending on how financially literate your family and friends are. It could end up being a case of “the Blind leading the Blind”.
It does not hurt to spend some bit of money and seek advice from a professional. This approach has several advantages. To start with, you will get the best financial advice from an expert in a particular field. A professional can help you identify ways of saving money that you may not have thought of. For example, a financial counselor can help you consolidate credit card debts leading to significant savings. But be certain that you know how he is getting paid. If he works on commission he might be just trying to sell you something. Surveys show that a person’s financial situation is generally equal to the average of their 10 closest friends. So they aren’t any better at handling money than you are! So why ask them?
4) Your Credit Score Affects More Than Borrowing
Your credit score can have a positive or negative impact on family finances. Remember most property owners carry out background checks to determine the credit worthiness of potential tenants. A bad credit score will make it hard for you to find a house where you can live with your family. A bad credit score makes borrowing more expensive.
Furthermore, a bad credit score will make it harder for you to access financing from traditional lenders such as banks. Make sure you check your credit report at least once every year. Pay your bills on time and keep a good credit score.
5) Have a Stash
Setting aside some money for emergencies is very important. You don’t want to have to run out to your neighborhood payday loan lenders in case of an emergency. According to the Federal Trade Commission, the annual percentage rate for a payday loan can go as a high as 391%. Therefore, by having some money on hand, you can avoid hefty interest charges and penalties from such lenders. Ideally, you should have 3 months of living expenses in the bank but also some extra cash around the house. After all you never know when the banks will be closed due to a holiday or a power outage or even a national emergency.
Whether you are married or engaged, setting aside time to plan family finances is necessary. Start by your monthly income and expenses. Talk with your spouse about sharing household expenses. If you face financial difficulties, consult a professional instead of seeking advice from friends. Finally, check your credit score regularly and save some money.
See Also:
- Using Credit Cards without Getting Into Debt
- Money Potholes on the Marriage Road
- The Quickest Ways to Pay Off Your Student Loan
- Understanding Your Family’s Spending Behaviors