There may be nothing more frustrating than knowing there are bills to pay but not having enough to cover the amount due. However, if families were to really sit and look at their numbers together, there is a good chance more money could be found and reasonable changes made to the family budget for families to get ahead.
Here are some reminders for family budgeting that never get old and can help stretch even the tightest incomes:
Start With the Numbers
Too few families will actually sit down with all of their bills, expense lists, and income statements to take a hard look at the math. In the chaos of a busy family, budgeting is often pushed to the side — but it is budgeting that keeps finances on the right track.
Start with just a pen, paper, and a calculator. List all the income for the month at the start and deduct all expenses the family spends in a month for housing, utilities, food, entertainment, education, transportation, and general expenses. (If you have no actual physical number for the general expense categories, i.e., lunches out, coffee runs, spending money for kids, commit to tracking all expenses for all family members for at least 30 days.) There are many free budgeting worksheets available online to help get you started.
Make the Cuts
Most families likely have a multitude of ways to cut back in their spending, but many choose not to cut down for convenience reasons. But when money is tight and the family is barely surviving paycheck to paycheck, it's time to take out the red pen and slash expenses.
For instance, cutting out cable for six months can save a family between $600-$800 depending on your service provider. Find creative ways to substitute television time such as free movies from the local library, family game nights, or inexpensive hobbies. As you deduct the savings from the cuts you make, add it to your bottom line on your budgeting worksheet. Outside of cable, you likely can find other areas where cuts can be made, especially if you review your general spending category.
Allocation of Funds
Now that you have the physical figures in front of you, it will be easier to divvy up the income you have for your variety of expenses. For instance, some families may find it easier to allocate funds on a weekly basis. Paycheck one can be used to cover X expenses for that week. Any monies left over should be allocated to a high-interest savings account. Even $25 a week deposited into an account will net a family $100 a month in savings or $1200 a year plus interest. Automate these deposits either from your paycheck directly or from your bank account to prevent you from forgetting.
Couples should decide on limitations for spending without each other's input. For instance, any purchase over $200 requires approval from both sides. Each person in the family should also receive an allowance of cash weekly to be spent as they see fit. This makes it easier to track one allocation of funds rather than multiple purchases.
Children old enough to earn allowances should be included in the discussion of basic family finances. Too many parents dole out cash for kids' needs and wants without much tracking or standards for earning money. There is no set allowance amount and parents can institute creative ways for kids to earn their own spending money based on each family's needs.
Create Goals as a Family
After basic finances are discussed and budgets set up, have a family discussion about financial goals and how to reach them. Most kids aren't concerned about making sure the electric bill is paid each month, but they likely want to add their two-cents about family vacations, day trips, and other projects that require savings.
Parents should use discretion when discussing money issues with kids, but there are many lessons even young kids can grasp in childhood that will serve them well as an adult. Kids need to understand the basics, as many believe that mommy and daddy can use a plastic card to buy anything, or that their parents can magically withdraw cash from a big machine without understanding how the money got there in the first place. Set up each child with a free, basic checking account and help them manage their deposits regularly.
Once the hard stuff has been accomplished and a family has a better understanding of their financial situation, it is most important to keep moving forward and be proactive about finances. Thanks to technology today, there are many online money management programs, including those offered by Mint and Vertex42, where money information can be inputted and tracked nearly automatically. Budgets need to remain flexible and fresh in order to be effective.
Getting back in control will also help alleviate family financial stressors, renew confidence, and may even spark new ideas for adding income to the mix. If you find you are still in need of assistance or may even need a new job with better pay, don't let pride or fear prevent you from trying to get back in good financial health. The initial task of getting your financial life together is often the most overwhelming part of the equation. However, facing it head on is the only way to regain control. Otherwise, you risk an unhealthy financial life for the whole family and a continued uphill struggle to make ends meet.