When you are a single person, managing your money isn’t particularly difficult. Typically, you have only one or two sources of income, a handful of essential expenses like rent and food and maybe a couple sources of debt like student loans and credit cards.
However, when you start a family, you have all those income and expenses and then some. You suddenly have to pay the expenses of family members who might not be able to generate income for themselves; you will take on increasing amounts of debt, like auto loans and a mortgage, to ensure your family has what it needs to thrive. And managing all this incoming and outgoing money becomes a much more significant headache.
Working together to develop a cohesive financial plan is imperative for a family hoping to build wealth. Here’s a strategy for coordinating every family member’s finances to create a successful plan for money management:
Set Mutual Financial Goals
You alone might have savings goals related to buying a brand-new sports car or going on a trip with your friends, but because you live in a household and share financial responsibilities with other members of your family, your personal financial goals aren’t of prime importance. Instead, you need to get together with the other decision makers of the house and talk about what your financial goals as a family should be. Some examples of common family goals include:
- Paying off debts, to include student loans, credit cards and mortgages
- Saving for retirement
- Accruing college funds
- Building a family vacation fund
- Buying a larger house
Ideally, your goals will be SMART, meaning they will be specific, measurable, attainable, relevant and timely. Once you can agree on a handful of goals, you should work together to set deadlines and build a plan around reaching them. You might prioritize your goals to achieve more important goals faster, or you might work on all of them simultaneously — what you choose depends on your household situation and concerns.
Track Everyone’s Spending
Before you can build a family budget to help you achieve your mutual financial goals, you need to know more about your income and expenses. Income is relatively easy to track; you can look at income-earners’ paychecks (and tips, if applicable) for the month to understand how much money your family has coming in. Expenses, however, are much more complicated.
Instead of trying to complete forensics on your bank statements, you should start tracking your expenses in real time — without trying to modify them in any way just yet. You might use money management software to help you categorize different types of expenses, like “mortgage” and “social events” and “school supplies.” After a month or two, you should have a realistic idea of where your money is going, which means you can more accurately work to change it.
Create a Family Budget
Using the same money management tool in the previous step, you should begin building your family budget. Your budget should include your essential expenses, like shelter, utilities and food, and you shouldn’t shy away from including a small fund for fun activities, too. However, most of your budget should help organize your contributions of money toward your family financial goals, which means that you will need to trim your typical expenses to account for this new financial activity. Some examples of expenses easy for families to cut include:
- One or two of your subscription services. Do you really need both Hulu and Netflix?
- Cook and eat at home more often. You will save money on groceries and enjoy more family time.
- Buy cheaper alternatives. Consider off-brand food and clothing, and even used items from thrift and consignment stores.
- Shift your transportation. You can walk and cycle places to conserve gas.
Teach Kids About Money
Though they aren’t generating income and (if they are young) aren’t spending money, kids need to have financial sense. For the most part, kids will gain their financial habits by watching their parents manage money, so you should work to set a good example with your spending and saving. You can also incentivize them to learn about money management by giving them an allowance and teaching them about opportunity costs when grocery shopping together.
Being part of a family is difficult, not least because of the increased financial stress. However, by talking to one another about finances and working together to achieve financial goals, you and your family can thrive.