How to Manage Your Family Finances
To make the most of your money and to ensure that your family is well catered for, you must manage your finances. This means that you need to have a plan for the future, know where your next check is coming from and be able to meet your bills as they arise. You should also be able to manage any debt you accrue and understand the various financial products available to you.
There’s a lot to learn!
While many people would prefer to bury their heads in the sand and try not to think about their finances, the best thing to do is educate yourself. You don’t need to know all the intricacies of the financial world right away; you can start with the basics and build up.
So, let’s start at the beginning.
Where to Keep Your Money
Where you keep your money is a really important place to start. You need to balance security with interest rates and accessibility. For most people, this usually means creating an account with either a bank or a credit union to manage your day to day transactions plus a savings account to put money away.
But what is a credit union and how is it different from a regular bank?
A bank is a for-profit organization that will invest the money you deposit. This is why most bank accounts come with a competitive interest rate. A credit union is a not-for-profit organization and their emphasis is on helping their customers save more rather than selling a range of financial products. There are benefits to both banks and credit unions so it is worth looking into which might suit your needs best – indeed, you can have multiple accounts.
Managing Your Daily Finances
Everyone uses different techniques to manage their daily finances so finding the right option for you is really important. But no matter what sort of system you come up with, you must have a budget in place.
Creating a budget will help you understand where your money is going, identify areas where you could be spending less and figure out whether you are getting good value for your money too. Most people work on monthly budgets as most regular expenses are taken on a monthly basis but you may also like to create a weekly and yearly budget to get a fuller financial picture.
To create a budget, you need to get your head out of the sand and do the math! This means that you need to know how much you earn after tax (look at your payslips) and know how much each of your regular bills cost. The most obvious costs are things like rent and utility bills but don’t forget to add other expenses such as fuel and any subscriptions you have such as TV. You can use Google Sheets to collect all this information and do the math.
For your budget to balance, your outgoings need to be equal to, or ideally less than, your income. This way, you should be able to avoid getting into further debt and be able to put away some money for a later date. If your budget is imbalanced, and you are struggling to meet your outgoings, you need to look at where you can save as well as how you can increase your income.
Savings: Rainy Days and Future Plans
Saving money is a really important part of your financial plan. Having money put aside is the best way to prepare for unexpected expenses, save up for more expensive items and have rainy day money just in case. A savings account is a good way to start putting money away to begin with but once you are feeling more confident, you might like to start looking into creating an investment portfolio (we’ll get to this a bit later).
To begin with, don’t worry too much about how much you put away, as long as you put something aside. Finding ways to save money is quite a skill but once you start looking, you’ll be surprised by how easy it is. Start by looking at your food bill and utilities to see where you could cut back, then move on to see where else you might be able to save. Automating saving by setting up a direct debit between your accounts is the simplest way to ensure that you save each month.
The first step is to make sure that you have an emergency fund. This is money saved for in case of emergency and should equal a couple of months’ worth of income. Your emergency fund should also be easily accessible so you can get to your money when you need it but this probably means that it won’t be earning much interest.
Once you have your emergency fund, you can start looking at other savings options. For example, you could set up another savings account with a higher interest rate but with less access. You can also start saving up for specific things like holidays, home improvements and any other larger investments. You should also be putting money towards a 401K or another pension pot but your employer may have already sorted this out for you.
Manage Your Debt Repayments
Most people have some sort of debt, whether that is a mortgage, student loans, credit cards or another form of debt. Putting a plan in place to manage your debt is really important for 2 reasons: first, you need to ensure that you don’t fall behind on your repayments and get further into debt and second, the longer you take to repay your debts, the more expensive they become.
There are a couple of ways to deal with your debt but one of the more popular methods is the snowball method. With this strategy, you start by paying off the smallest debt first and work towards the big one. This way, you build up your motivation and your payments can gradually get bigger as the money you would have put towards the previous debts can now go towards paying the next one off.
Some debts, such as mortgages are designed to take a long time to repay. For this reason, while you might decide to overpay towards the end of your mortgage agreement, it’s probably not worth trying to pay it off as fast as possible. Indeed, some mortgages won’t let you! As long as you keep up your regular payments and you search for better deals every few years, this kind of debt is fine and should be budgeted for.
How to Start Investing
So far, we have covered the basics of financial management. It can take a long time to reach a balanced budget where your debts are repaid and you have an emergency fund but don’t let that put you off doing it. Once you have achieved financial security, you will be able to do far more with your money.
Investing is tricky to begin with so it’s always good practice to do your research or visit a financial advisor. However, no matter what you invest in, the principle is the same: you put in some money, wait a bit and then claim your return. There are lots of kinds of investments from stocks and shares right through to buying wine or kick-starting a business. What you invest in is up to you (which is why research is so important!).
You should only ever invest money that you can afford to lose, which is why you need to have your emergency fund in place first. It’s good advice to invest a small amount first to test out the market and, as you gain confidence, you can do a little more. Diversifying your portfolio will help you to manage the risks associated with investing but that’s a blog for another time.
Teaching Your Kids About Money
The final part of managing your family finances is what you can teach your kids about money. Lots of people feel weird when they talk about money but not discussing your finances as a family can have a really detrimental effect. Kids who are brought up to understand finances tend to manage far better than those who were kept in the dark.
You can use pocket money to demonstrate all the basics of family finances from balancing income with outgoings (pocket money vs toys) right through to saving up for something bigger. To replicate the idea of a bank, all you need is a notebook to write down their expenses and running total. Remember, though, you need to keep things age-appropriate so while a simple system will work for younger children to get the basics, you still need to talk to teens about the more complicated things like supporting themselves as adults.
As parents, there’s always an unspoken pressure to know everything but finances are a continuous learning curve for everyone. All you need to do is try to set a good example with your own money management and be there to offer advice – or at least help with the Google search!