Life, especially family life, is impossible without financial planning. Money and its distribution play an important role because there are unforeseen expenses in addition to current costs, and there are also “wants” and goals in the long run, which will not earn themselves.
A family budget is the total of a family’s actual income and expenses over a specific time. Payment includes all sources of income: wages, benefits, pensions, part-time jobs, interest on deposits, rental income, cashback on bank cards, support from relatives, etc. What if you need $2000 fast? Then you can take advantage of current offers from lenders.
Expenses are everything a family spends money on, from required mortgage payments and utilities to public transportation. Expenses are divided into:
- fixed (utilities, loans, groceries);
- unforeseen (repairs of equipment, medical care).
Also, expenses can be systematized by frequency: annual, monthly, weekly, daily, seasonal, etc.
Personal expenses of each family member are also considered in the family budget.
Types and Methods of Family Budgeting, their Pros, and Cons
The main thing in managing a family budget is the ability to negotiate. All family members must understand the importance of financial planning and participate in it. You also need to determine who will be the “chief accountant.” It is the first step.
How U.S. families manage their budgets? Americans spend an average of $21,409 on housing — 30%. Transportation takes away $9,826 — 14%. Other spending items:
- income taxes, $9,402 — 13%;
- food, $7,316 — 10%;
- personal insurance, Social Security, and retirement plan contributions, $7,246 — 10%.
When it is possible to reach an agreement in principle, decide how to divide the family budget. It can be done in any of the following ways, considering the income structure and possible reasons for conflicts.
Joint
All money is shared.
Pros:
- It’s evident to everyone what and how much money the family spends.
- It’s more convenient to save for major purchases.
- In the case of unequal income, it relieves tension over goals and spending if there is agreement on that.
Cons:
- Allocating funds for personal expenses may seem unfair to someone in the family, especially those who don’t work or earn substantially less than a partner.
Mixed
Conditional Joint Budget: All family members’ incomes are added up for everyday expenses, with some of the money earned each keeps for themself.
Pros:
- Everyone understands how much the total family budget is and how it is spent.
- Everyone is left with money for personal expenses.
Cons:
- Disputes can arise over the number of contributions to the “common pot.” They should be commensurate with a family member’s income but still sufficient to cover necessary expenses.
- Traditional accounting of incoming funds is essential, and you need to make budget adjustments to follow the chosen financial plan.
Separate
Each family member manages their income. Ordinary expenses are paid in turns or shared.
Pros:
- Everyone remains financially independent and is only responsible for their income and expenses.
Cons:
- Disagreements may arise over shared expenses — what is the order of payment or who pays for bills/services.
Misunderstandings or low responsibility may result in someone not being willing to meet their following financial obligation. In the case of unequal income, this model can lead to conflicts.
Solitaire
Only one member of the family earns.
Pros:
- Generally a forced option/option in an abusive relationship.
Cons:
- It makes the other partner and other family members entirely dependent with no income, leading to conflict and miscommunication.
If some budgeting format doesn’t work for you, you can try another.
Should Each Family Member Have a Personal Budget?
Preferably yes. Drawing up a family budget considering its members’ personal needs will help maintain a comfortable psychological climate because everyone will be able to spend a certain amount of money in their way. On hobbies, gifts to loved ones, different “wants.” Children need pocket money, even in small amounts, so they learn how to handle it.
Learning to Plan and Budget for Your Family Properly
So, you have decided to engage in financial planning. The algorithm is as follows:
- Set a goal and a deadline for achieving it: to save up for a vacation, for a mortgage payment, to close a credit card, etc., by a specific time.
- Make a financial plan: how much money and time do you need to do what you want.
- Analyze your current income and spending patterns, recording them daily for a month or two.
- Evaluate opportunities to optimize expenditures and build reserves.
- Choose a budgeting and money allocation scheme.
- Plan revenues and expenses for the month/two/six months, and write-down limits.
The most important thing to do is to fix income and expenses.
Savings: How to Reduce Family Spending?
Despite the similarity in the structure of income and spending, the situation in families may differ. However, some universal tips will help you save money:
- Avoid dinners in cafes and restaurants in favor of lunch boxes with home-cooked meals.
- Pay attention to promotions and use loyalty cards from supermarkets, drugstores, and gas stations. Discounts can help you save money on everyday spending, and the points you accumulate can help you get ahead.
- Go shopping with a shopper and a list of essentials. Having your own “carrier bag” instead of a bag in the store is economical and eco-friendly, and a list of products and goods will help you not to take unnecessary things.
- Pay with a cashback card. Then you can get back a percentage of the money you spend to your account.
- Get a card that gives you interest on your account balance and bonuses for spending in specific categories.
- Get a public transportation pass if you can.
- Install water and electricity meters at home, preferably multi-tariff meters. Also, replace regular light bulbs with energy-saving ones.
- Don’t disregard free medicine and generic drugs.
- Take a tax deduction. You can get back a portion of the personal income tax paid for medical, educational, and other services and real estate purchases.
Working with the family budget is a means to an end, not an end usually.
How Not to Fight About Money?
Talk about what you’re unhappy with while trying not to shift all responsibility for the cause of the disagreement onto partners. Coordinated management of family money will reduce the degree of tension.
Be sure to keep personal money for each family member: even if he’s not working, he’s still entitled to some financial independence. Look for additional sources of income.
A large percentage of families don’t keep a budget for a good reason. It allows you to establish financial stability and meet your goals. Systematizing expenses and income is not as difficult as it may seem. The main thing is to agree on whether the budget will be shared in whole or in part, choose common financial goals, and regularly monitor cash flow.