Financial distress or financial prosperity affects everyone in the family. And research backs it up. An increase of just $1,000 in annual income improves young children’s achievements by 5%-6% (up from the standard deviation). So, if not for your own sake but for your loved ones’, learn how to be good with funds.
One of the easiest ways to start your journey to financial security and continuously push it forward is to create a budget and stick to it.
Read on to learn 7 reasons why setting a family budget for a month works and why your family should have one each month.
1. It helps identify your problems with income management
A family budget is important because it offers a closer look at your spending habits. Perhaps, more importantly, it sheds light on your bad spending habits. For example, what if you spend too much on cable while also paying for numerous streaming subscriptions?
There are many stories in which people were clueless about what was draining their funds. They spent money, didn’t track their spending, and moved on. But when you have it all laid out in a spreadsheet or on an app, it becomes clear whether you’re spending adequate amounts on different areas of life.
2. It offers transparency and keeps everyone honest
Continuing the point about family budget categories, it’s worth highlighting that budgets help family members be honest about where the funds are going. The figures are put in writing, and if someone routinely goes over the budget, you will know before it’s too late.
Since all purchases are documented, and future purchases will not come out of the left-field, everyone will stay accountable to the family’s shared goals. Besides, it can be a powerful incentive to stay true to good intentions.
3. It ensures you spend within your means
One of the worst things that can happen to your family’s finance is crippling debt. Sometimes, it’s caused by a combination of family sicknesses, personal injuries, and growing family costs. But sometimes, families find themselves in debt just by being unaware of what they can/can’t afford.
A budget will keep you in check. At the beginning of the month, you will understand how much you plan to spend and on what. And at the end of the month, you won’t be left wondering where your funds have gone.
4. It prepares your family for emergencies
Emergencies seem to arise at the worst possible time. But you can deal with some unexpected surprises before they arise, preventing serious financial turmoil.
Any typical family budget template leaves an extra column for emergencies. As briefly mentioned above, you don’t need to dump your entire paycheck into an emergency fund. It’s also one of the things that budgeting teaches you — to take a gradual approach when you have big goals.
5. It helps you save funds in the long-term
A budget puts your family on a stronger financial footing for not only the day-to-day but also the long term. Yes, you might see improvements in a matter of months — perhaps more funds to spend on necessities you’ve been putting off or the funds needed to take a vacation. But as you continue managing your capital well, you will see that even massive goals seem easier to reach — putting a down payment on a bigger house, remodeling, saving for your children’s education, or retiring.
6. It keeps you in control
Something as simple as a family budget planner lets you control your funds instead of your funds controlling you. So, your family’s day-to-day life by circumstances that you feel powerless about.
Interestingly, simply feeling more powerful is revealed to make people better financial decisions. When you feel in control, you want to keep that feeling. This ultimately creates a new positive cycle that can empower and motivate you.
7. It improves your relationships
Due to financial struggles, some people become more irritable, resentful, or standoffish toward their partners and other family members. Instead of pointing fingers at one another for the family’s financial downfall, you and your loved ones will work together as a team.
It’s more than just income. Healthy financial management in the family teaches everyone how to communicate effectively, make plans and stick to them, prevent crises, and overcome conflict.
Tips on how to get started with budgeting
Different families have different rules for managing their finances. So, this section will not dispute the way your family deals with funds. Rather, it will share a few common recommendations that can work for practically any family, especially if you customize them to fit your specific situation:
- Everyone in the family should be involved in creating a budget. Even your older kids can download a family budget app and participate.
- Have your monthly expenses planned out before the month begins. If you’re worried about unexpected expenses, that is what the last part of the 50/30/20 rule is for (needs/wants/ savings).
- Keep special occasions, vacations, scheduled maintenance, and other additional expenses from sneaking up on you.
- Prioritize debt repayment, and tackle high-interest debts first.
- Allow yourself some time to get used to the new structure; it won’t be perfect from day one.
A budget doesn’t limit your freedom – it offers you freedom!