When you’re raising a family, every day comes with its own set of challenges. Whether it’s taking your kids to soccer practice or meal planning for school lunches, there’s always something going on.
Many of these things also come with a cost, and you can’t always be prepared for all of them. Perhaps your child outgrew their shoes overnight or your air conditioner broke in the middle of summer. Expenses can come out of nowhere, and it’s important to be prepared.
With a strong family finance management plan, you’ll be ready for those sudden expenses and still be able to save for that perfect family vacation. Keep reading below for our ultimate guide to get your household finances on track.
5 family finance management must-haves
It’s difficult to get a full picture of your family’s financial situation without knowing all of its sources of income, expenditures, and debt (if any). That means disclosing your personal financial information with your partner, and vice versa. Sharing this information will help you better determine your financial responsibilities and separate your resources accordingly.
2. Open communication
In addition to being transparent, you and your partner must be open to discussing your finances regularly so that you can have a mutual understanding of your financial expectations. Prioritize balance as much as possible so that neither partner is under an unfair amount of financial stress. If you share an account, it’s also important to inform each other about any spending done using this account to make sure the other is aware.
3. A detailed spending plan
Have you ever read a map without street names and landmarks? Chances are, it’d be pretty difficult to get to where you want to go.
Think of your spending plan as your road map to reach your financial goals. It’s important to include all of the relevant details to make sure everyone in your family is clear on how money should be spent each month.
For example, take a look at the image below of the T. Harv Eker Six Jars Money Management Method, introduced in author T. Harv Eker’s book “Secrets of the Millionaire Mind”:
The six jars represent six common family expenses. The yellow section shows the ideal percentage of a family’s income that should be spent on each expense. Of course, these numbers can change based on your family’s needs, but this is a great place to start.
Many families also adopt the envelope spending method. This method involves separating cash into envelopes labeled for various expenses. Check out the video tutorial below to learn more:
4. Regular budget monitoring
Creating a spending plan is a great start, but the real work comes next. Once you have your plan in place, it’s important to regularly monitor your family’s expenses to make sure you aren’t going over budget.
There are many ways to keep track of your family’s income and expenditures. Some prefer to simply log their expenses in a notebook. We recommend going paperless by using a family finance management app.
For example, Shoeboxed is an expense tracker app that stores all your receipts and bills on the cloud and turns them into reports that you can use to better understand your family’s finances.
All you have to do is scan your receipts and bills, organize them the way you want, and you’re good to go. Shoeboxed will make your expense tracking and management a breeze!
You might also be interested in: The Ultimate Receipt Organization & Management Resource
5. Regular saving and investing
Once you’ve budgeted for your expenses, the next step is to start thinking about saving. You might’ve heard the term “saving for a rainy day,” but what about a sunny day? Or a cloudy day? Savings can be used for anything your family’s hearts desires.
We recommend setting aside about 20% of your income per month for savings, which can be used toward any emergency “rainy day” expenses, purchasing large assets, or even your children’s education.
A great way to grow your savings is to invest them. While we don’t recommend investing all of your savings, which can be risky, a good investment can be a source of passive income for your family. Get started on your investment journey with this video tutorial:
5 common family finance management mistakes to avoid
1. No clear plan
Have you ever baked a cake without a recipe? Even the most experienced bakers rely on instructions every so often. The same goes for family financial planning. Without a clear management plan, it’s difficult to control spending and save money. This puts your family at risk for easily avoidable financial stresses in the future.
2. Not tracking and managing expenses
Whether it’s a quick stop for coffee on the way to work or a splurge on the latest smartphone, any amount needs to be factored into your expense tracking. Even the smallest expenses add up and can seriously impact your monthly budget.
If you’re having trouble dividing your expenses with your partner, we recommend using an expense tracking app such as Splitwise. Splitwise helps you track and organize your expenses to make sure you’re both spending fairly.
3. Not having “the money talk”
As a couple, you and your partner are a team! That means you should be able to openly discuss your spending habits, needs, and goals together. It will be difficult to create a financial plan that meets the entire family’s needs if you haven’t resolved any disagreements or misunderstandings about your financial situation.
If you need some help getting started, check out this video:
4. No division of financial responsibilities in the family
To avoid bills slipping through the cracks or expenses going unpaid, make sure you and your partner’s financial responsibilities are clearly laid-out. For example, if one person pays the mortgage, the other pays the household bills.
Dividing bills and expenses can be challenging if one partner’s income is much higher than the other’s. This is where transparency and open communication come in. It’s important to balance financial responsibilities equitably, rather than equally, to avoid financial stress.
5. No reserve fund
Life comes at you fast. You need to be prepared for anything it throws at you. If your car breaks down or you lose your job, do you have enough money to cover your expenses? Having a reserve fund serves many purposes, but its main use is for emergency costs. Without a reserve fund, you put yourself and your family at risk of financial ruin, should you run into any large, unexpected expenses.
8 tips to effectively manage your family’s finances
1. Determine your family’s necessary expenses
Do you really need five streaming service subscriptions? How often should your family go out for dinner? Take a moment to write down your family’s regular expenses, including your bills and loans.
Then, consider your family’s needs and determine if you can eliminate unnecessary and wasteful expenses for your family. You’d be surprised where you can find savings! This might mean cooking at home more often, using the air conditioner less often, or even taking the bus to work instead of driving.
2. Think before you buy
Think twice before impulse-buying one of those “just one more” items while lining up at the checkout. Responsible spending means carefully considering all of your purchases. Read reviews, check competitor prices, and search for the best deals before you decide to buy something new.
3. Discuss your budget with your family
Just because they’re your family doesn’t mean you always know what’s best for them. Take time to talk with your family about budgets and expenses, so everyone is on the same page. You may gain some valuable insights that could save you money or improve your plan!
4. Create financial goals
Owning a home, buying a nice car, taking the kids to Disneyland, and having enough money to retire comfortably are all examples of realistic financial goals. It’s important to share and understand your family’s financial goals because these goals are the foundation of your plan. They’re what you’re working so hard to save for!
5. Leave wiggle room in your budget
Remember those unpredictable expenses we mentioned before? They may not always be as big as fixing a broken air conditioner, but they do add up no matter how much the amount. Don’t ignore your extra costs—factor them into your budget. For example, maybe you’ll need to spend a little more in December for the holiday season, so you’ll save a bit in January to make up for it.
6. Spend with a purpose
Before you make a purchase, ask yourself, “Why am I buying this?” You may find yourself impulse-buying more often than you think. To avoid overspending, plan your purchases in advance the old-fashioned way—by creating a shopping list!
7. Save with a purpose
You’ve heard of a shopping list, but have you ever made a saving list? Think of all of the things you want to save for in the future—think big!—and write them down. Keep the list somewhere you can easily see it, like on your fridge, to remind you why you’re working hard to save!
8. Monitor your credit card statements monthly
If you often use your credit card, be wary of overspending your “invisible money.” It’s easy to lose track of spending when you aren’t watching the cash disappear from your wallet. We recommend regularly checking your statements, or if you use bank apps, check your balance at least once a week.
Frequently asked questions
If you’re just getting started, the National Resource Center for Healthy Marriage and Families developed a helpful guide for healthy financial management that has some great basic financial tips for families. For a more detailed guide, try this one by the University of Arizona, which includes additional links to resources such as tax management guides and non-profit organizations that help families manage their money.
There are many ways to take your family finance management plan online. For those who prefer to go the manual route, Microsoft has a great Excel guide to help you get started. You can also use a number of apps to track and manage your family’s finances. Many offer handy reporting services and may even make suggestions to improve your finances. Here are some of our favorite apps:
• If you’re looking for something free and easy, Intuit offers an app called Mint that is known for its ability to sync with a wide variety of financial institutions for real-time expense reporting.
• Another up-and-coming app for couples looking to join their finances is Zeta. If you and your partner are looking to start combining your finances, this may be the app for you!
• If you want to get rid of paper clutter, while also managing your expenses, we recommend Shoeboxed. By scanning your receipts and bills through your phone camera, you can digitize them and store them in the cloud. The app also transcribes your documents so you can easily search for them and create expense reports. Not only will you be able to keep your home tidier, you’ll also have a better picture of your family’s finances!
Family finance management can be intimidating at first. You may find yourself overwhelmed with bills or find it difficult to determine what is and isn’t a necessary expense. But if you can establish strong financial goals and create a spending plan that works with your family’s income, you’ll be well on your way to financial stability!
Originally published on August 21, 2022. Updated on September 8, 2022.
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