It’s troubling to see so many families these days in which only one person is involved in the day-to-day financial decisions. Additionally, many families have one individual responsible for all the family finances. Within the family, finances should be a team effort. It’s never the wrong time to practice financial stewardship and improve upon financial literacy. We all have the responsibility of being good financial stewards. As a financial advisor, I come across many individuals that have never been involved in the day to day monetary transactions of their family, and now through some life changing circumstance (death, divorce, job loss, etc.), they are forced to catch up and learn the basics of budgeting and personal finance. They are in a position completely reliant on others, and unfortunately, in many cases they are totally unprepared.
Don’t wait for the unexpected to happen. Be prepared and take control of your finances now! If you have little to no experience with the family finances, then start small. Here are a few ideas of ways you can wade into the financial waters of personal finance.
1. Start taking responsibility for collecting and tracking all the bills that come in on a monthly basis. Set up a checklist either on a notebook or by using an excel spreadsheet. Enter the different bills and charges each month. Keep track of when the bills arrive and when they are due. Keep it simple. Have a date column for the month the services were provided, a description of the bill column, a due date column, and most importantly, the amount column.
2. Begin to compare each month’s bills to the prior month. This will give you an idea of what your average spending amounts are. I would suggest at least 3 months worth of bills in order to begin averaging your expenses. If you want to look at prior months, many times you can do so online. Most account statements will be available online, usually up to a year.
3. Have an understanding of the household’s monthly income and how frequently that money is deposited in your checking account. Do you get paid once a month or twice? What are the sources of your income? Are you a single income family, double?
4. Know when money leaves the checking account. We all have fixed costs that come out on the same day each and every month. Examples of those might be the following: mortgage payments, car payments, student loan payments, etc. Knowing when money goes out is critical in maintaining good cash flow.
5. Understand your family’s cash flow. Now that you’ve done steps 3 & 4, assess the situation. Are you making more than you are spending each month (positive cash flow) or are you spending more than you are making (negative cash flow)? If your cash flow is positive then you are on the right track. If it’s negative, you’ve got some work to do.
Being able to work through these 5 simple steps will dramatically increase your knowledge of the ins and outs of your family’s finances. Its a great starting point. Knowing where your money is going is more than half the battle. Once you know where its going, you can determine what to do about it. If it’s a reasonable amount of spending then stick with it. If it’s unreasonable, look for ways to trim your expenses in those areas. Through this process you’ll be learning an incredible amount about your spending habits. You don’t have to like what you see, you just have to recognize the reality of what you see, and determine what, if anything, you want to do about it. This exercise will bring you to the point of action. You’ll have, in many cases for the first time, a good picture of where you’re at as a family. Next you’ll be ready to work on what to do about it.
