Every family needs a good guide on how to manage finances. This helps the family not to spend more than they make and not to be in debt. Let’s have a look at the 5 management principles and 5 common mistakes in managing the family’s finances, as well as 8 secret tips to effectively improve your management.
5 Important Principles In Family Finance Management
When living in the same house, using separate sources of income will get newlyweds into trouble. To avoid arising awkward situations later, the couple should disclose all sources of income, expenditure, and debt (if any) of themselves to each other.
This helps the couple to grasp the current family financial situation. After that, it is easy to distinguish common and separate financial resources and plan family financial management.
2. Create a detailed spending plan
To make a complete and detailed spending plan, couples should list and classify their expenses and the proportion of each expenditure on income.
Here is the principle of the 6 jars, considered the golden formula for effective spending management, introduced by author T. Harv Eker in the book Secrets of the Millionaire Mind. The 6 main jars represent the 6 main expenses of a family. Eker shows the proportion of expenses in income as the chart below.
Divide income into small amounts for better control of personal and family finances.
Newlyweds can also adopt more optimal spending methods, such as buying in bulk (in bulk). To do this, you should refer to more companies following the Groupon model (Groupon = Group + Coupon). These companies encourage many people to form groups, buy the same items offered on the website to receive preferential prices, helping you save more money.
3. Monitor your budget periodically
After you have a detailed spending plan, you need to keep a close eye on your expenses. This helps your family not to be “excessive” when spending beyond the plan.
This monitoring is as important as planning. Because, if you make a plan without doing it right, the plan will be thrown away!
We recommend using a notebook or software to track your family’s income and expenditure.
Shoeboxed is an expense tracker app that stores all your bills on the cloud and allows you to make a report out of it easily. All you have to do is scan your bills, organize them the way you want, and you’re good to go. Shoeboxed will make your expenses tracking and management a breeze!
4. Financial dispute resolution
In addition to understanding each other’s spending habits, the couple should also discuss and agree more on resolving financial disagreements if any in the future. The principle of equality and sharing should be put first.
5. Saving and investing continuously
Every family will have a lot of emergency situations that they themselves do not anticipate. At that time, the savings will be the lifeline for the couple. In addition, these savings can serve many different purposes such as buying big assets, seizing new opportunities, ensuring children’s education…
The savings that each person should set aside each month is usually 20% of income, like the 6 jar model that we introduced to you above.
Saving is definitely necessary and then investing, why is it important?
Surely you are not familiar with the concept of money making money anymore, right? Investing is one of the fastest ways to make money. This is an additional source of passive income for the family, you can use the income from investments to cover your married life, save or reinvest.
Only relying on fixed income sources is too difficult for husband and wife to balance income and expenditure, especially in urgent situations.
5 Common Mistakes In Managing Family Finance
1. No clear plan
No financial management plan will easily lead to uncontrolled spending, no reserve fund for the future, especially for children. In addition, in emergencies, the family will become troubled, which can cause disagreement within the family.
2. Do not track and manage expenses
Many families are subjective with monitoring and managing expenses or completely rely on the balance of the wife. There are many ways to monitor, it is important that the couple know how to work on this task together. Since we are living in the era of technology, let’s get used to monitoring and managing with utilities or software (apps) on phones for the whole families.
3. Disagreement on habits and spending
“You spend your sugar, I spend my sugar” or “you have to give me all the money to keep, it’s forbidden to have a separate fund”. Mistake!
Being too financially independent will be difficult to use for common purposes, or when there is urgent joint work, both husband and wife are not available. The lack of a separate account interferes with the other party in social communication, now going out without money is very difficult to manage.
Understanding the spending habits and needs of the other person to make it easier to set up a general fund, a separate account, then making a plan to manage family finance are all equally important.
4. No division of financial responsibilities in the family
Most of the couples 8x and earlier, the husband working, the housewife is the model, the division of financial responsibilities in the family is very easy. The husband is responsible for the family’s income. The wife is in charge of spending so that the expenses are appropriate and there is a reserve fund.
Nowadays, most couples have their own source of income. The sharing of financial responsibilities between husband and wife, if not clear, will easily lead to an urgent need for money without any available money because both have used up their income.
5. No reserve fund
Saving is extremely important. Read also the 5th principle above to find out why. Don’t fall into an unwanted debt situation because of a lack of reserve funds.
8 Tips To Effectively Manage Family Finance
1. Have a family expenses plan
Let’s start with planning. The monthly expenses should be less than the couple’s income. Planning will help you determine if you can eliminate unnecessary and wasteful expenses for your family.
2. Please consider carefully before buying
Before you buy anything, check prices and quality in many places to make sure you’re getting the best deal. Do not forget to read the reviews of the users first, then choose a reputable brand and address.
3. Take time to discuss with family
Take time to talk to family members about budgets and household expenses. Check that your current budget fits what you need to spend. Discuss removing unnecessary items or add if necessary.
4. Have a financial goal
Next, you need to set a financial goal to decide and organize the plan. Based on that, you will determine what needs to be prioritized and closely monitor your financial funds to achieve your goals.
5. Don’t ignore the extra costs
You should not only focus on the fixed monthly expenses but ignore the costs incurred. Each month, you will have different needs. For example, during Tet, you need to increase spending on house cleaning, clothes, food, fun activities, lucky money, etc. And the budget for this must be properly allocated.
6. Spend with purpose
Before spending money on anything, ask yourself what is the purpose: “Why buy this product?”, “Why pay for this service?”. Analyze the reason for each expense to make sure you’re on track for your goals.
7. Saving with a purpose
Just like spending, you should find a reason to save. If you know why you have to save (buy a house, buy a car, etc.), you will easily resist the urge to spend money.
8. Monitor your credit report monthly
Every month, you should take the time to go through your credit report. Be wary of credit loans because if you don’t pay attention, you will borrow more than you can afford.