Taking care of your family means addressing a number of financial challenges. Keeping track of the constantly changing expenses that your family has is probably the biggest one. Here is how you can succeed financially.
The expenses that you must take into account to manage your money correctly are many and include housing, purchasing food, and utilities and other monthly bills, and make it a difficult matter. The answer to the problem is a family budget.
What is a family budget?
A family budget is a statement that shows how family income is spent on various items of expenditure: necessaries, comforts, luxuries, and other cultural wants. It generally has more categories than a personal budget (and often multiple incomes), but its purpose is the same: to help your family successfully manage its money.
Creating a budget will help your entire family succeed financially, no matter how many members your family has. Everybody who depends on your income ( your parents if they depend on you or children from a previous marriage or away at college) must be included.
A family budget is a key strategy to ensure that your household is financially healthy (now and in the future) because:
• It establishes how much your family can spend each month to help prevent debt.
• It helps you to save for future major expenses;
• It provides an overall view of how much debt your family has and how that debt impacts your financial future.
• It helps you to be prepared for an emergency.
What elements should you include when setting up your family budget?
Family budgets typically have seven components: housing, food, child care, transportation, health care, other necessities (e.g., clothing and entertainment), and taxes.
These components can be organized into four categories:
• Fixed expenses: These expenses include items that cost the same every month (mortgage/rent, car payment) and that can’t be reduced because they are necessities. The amounts remain stable, so you know exactly how much of your and your partner’s paychecks you need to put toward these expenses.
• Variable expenses: Variable expenses (e.g., groceries, utilities) fluctuate month to month. Some of these expenses will be needs (your electricity bill), others are wants (money spent on outings).
• Debt: Debt can be anything from credit card balances to student loans. An effective budget will help you figure out how to pay off any shared debt (and avoid any debt that your kids might be saddled with later on).
• Goals: Your family’s financial goals should be can be short-term and long-term goals and are what your budgeting decisions are decided upon. They could be things like “Save $200 for emergencies over a year” or “Pay off the car loan in three years.”
All of these categories are important to keep in mind as you prepare to build your budget. Every family budget will be different, according to its unique characteristics Getting your budget right is the first step towards financial success.