A beginner’s guide to managing finance as a family.
A significant part of growing up and becoming a mature, responsible adult is learning how to manage your finances.
A significant part of growing up and becoming a mature, responsible adult is learning how to manage your finances. And when you have a family, you are expected to manage not just personal finances, but family finances too. But, what if everything related to budgeting and managing finances stresses you out? What if money-talk makes you want to ‘escape’.
The best thing to do is to break down the whole financial planning task into smaller, manageable steps, and start building greater visibility of your income and expenses. You may already know how much your family income is, and how much your family needs every month to lead a comfortable life. However, with careful planning and management of your family’s finances, you will be able to afford much more than your basic necessities.
Here’s a beginner’s guide to managing your finances as a family, with small systematic steps that can help you get started.
Understand your family’s needs
When starting to manage finances for your family, you must start by defining your family’s most fundamental needs and wants. Of course, rent, food, and utilities can be the most basic expenses you need to cover. But try to go deeper and truly assess the financial needs of every member of the family.
For instance, if you have children, their education, co-curricular, and extra-curricular development becomes a significant need. And this need could consume a large portion of your monthly expenses. Similarly, primary and supplementary healthcare, as well as medicines for your elderly parents is another major family expense to be considered.
You can’t afford to focus only on your current needs either. Try to evaluate how much your family needs to start saving for your children’s higher education, medical, or financial emergencies, and your retirement.
Figure out where your money is going
Once you understand all your family’s needs, you can compute the amount of money needed to meet all those needs satisfactorily. Whether you are a single-income household, or you have multiple sources of income, it’s possible to manage your family’s basic needs within what you are making.
In fact, you may be earning more than enough to manage your family’s finances but are not utilizing your income to its full potential. You need clarity as to where your family’s income is actually going. So, as your next step, write down all your monthly expenses.
Try to capture all the categories that you as a family spend on. While food, rent, utilities, transport, education, and healthcare are indispensable expenses for every family, try to figure out how much you are spending on the ‘nice to haves’. These could be impromptu coffee runs, a new video game, a fancy haircut, or anything else that is not a necessity.
If you can do this activity for a longer period, you may also be able to capture the kind of unplanned expenses that you, as a family, have to manage. These could include medical emergencies, car or appliance breakdown, and friends or family in need of urgent credit.
Draw up a practical budget
With your outflow in front of you, you can easily identify the areas where you spend the most. Although some expenses will be as expected, others may quite surprise you. This exercise may reveal to you where your money is going, and why you haven’t been able to save as much as you always wanted.
But, when you reach that point, try not to point fingers or judge what others are spending on. Instead, draw up a practical budget, which is viable for the entire family. Try to identify expenses that you can do away with and non-negotiable expenses.
The 60:30:10 budgeting formula can be a great place to start as a beginner. It allows you to budget 60% of your income towards your needs and necessities. 30% can be allocated towards wants and all the things that give your family a good lifestyle. The remaining 10% should go towards mandatory savings.
Evaluate all sorts of debt and liabilities
As you are evaluating your family expenditure, you should also review where this money is coming from. For most of us, our monthly income is supplemented by credit cards to manage day-to-day expenses. We are so habitually using credit cards for daily transactions that they become our payment mode of choice, even when we have cash or debit cards available!
But this habit actually makes it more difficult for you to achieve your financial goals. A quick look at your monthly expenses will reveal that a big part of your income may be going towards paying off personal debt. And since an unpaid credit card balance can attract as much as a 17% interest rate, it could very much become a liability for your family.
The situation can become even more complicated if you have supplementary cards for every family member. Not only can you not control their expenses, as a family, but you may also gather a sizable debt over a period of time.
Find smarter solutions for money management
With your inflow and outflow mapped out, you are now poised to start managing your family’s finances actively. After all, personal finance management isn’t just about bookkeeping. It’s about taking timely actions to reduce debt, create savings, build wealth, and develop sustainably healthy spending habits.
There are several smart money management solutions available in the market to help you do just that. But if you are looking for an all-rounder financial management product for your family, look no further than Xare. Xare is a fin-tech product that allows you to plan and holistically achieve your financial goals.
You can easily draw up a budget for your family’s spending and create and share free Xare cards with every family member with limits set by you. Not only do you get complete visibility of everyone’s spending, you can also practice sticking to the monthly budget as a family.
This innovative post banking solution also allows you to take care of unprecedented expenses, wherein you may have to extend credit to a friend or family, without affecting your budget at all. With Xare, you can create a saving potential within your family’s monthly budget and start achieving your goals one by one. Here’s a video on how Xare works :