by Stacy Francis, CFP®, CDFA
“I’m a CEO”, explained the new client with whom I had lunch yesterday, “yet I feel as though I have no control whatsoever over my family’s spending. I never have any money left to invest, store and credit card bills grow larger each month, and my children demand more and more expensive clothes. I’m completely overwhelmed – and exhausted.”
I have heard similar stories many times before, so I was able to ensure her that there’s an easy fix to her problem. She simply needs to manage her household budget the same way she manages her company’s budget! These days, many women possess exceptional organizational skills that make them extremely successful in the corporate world. What many don’t know is that these skills are just as useful at home with their personal finances.
How to Create a Family Budget
If my new client’s situation hits a bit too close to home, follow these four easy tips to get your family budget under control:
- Review spending history. Before you start to make changes, make sure you know where the money is going. To many, seeing their spending habits on paper is a big shock!
- Listen to your employees – in this case your family members. Strategize together on how to save up for expensive items like vacations, and review budgets as well as ideas for how to make them work.
- Make the budget public, leaving as little room as possible for doubt and misunderstandings. The budget should include both goals and ideas for how to make them a reality.
- Review your progress frequently. Gather your family once per month to review the parts of the budget that are working out – and the ones that aren’t. If needed, solicit ideas for troubleshooting. Your spouse and children are much more likely to make an effort to stick to the budget if they were part of creating it!
How to Keep Your Kids’ Expenses Down
I met with a group of new mothers last week, who were eager to sort out their budgets now that two had become three. They all had a good understanding of the types of costs involved, but like many new parents, had underestimated the dollar amounts.
The great news is that kids’ expenses is an area where an ounce of attention really can make all the difference – translation: several hundred dollars per month. So whether your child is a newborn, toddler, grade schooler or teenager, below are a few tips on how to keep staples spending under control, so that you’ll have more money for the fun stuff!
- Brown bags. If you are consistent and make your children lunch-to-go every day, they won’t even know fast food is an option. You’ll have more money – and they’ll be healthier.
- Vintage. It’s very fashionable these days! When your children are growing quickly, while there’s no need to deny yourself the occasional splurge, buy the majority of their clothes in vintage stores. When they have outgrown them, resell. You’ll be saving the planet, too!
- Outlets. For many teens, the world centers around labels. Fortunately, you can find many of them at 25-75% off in outlet stores – and sometimes online.
- Tax credits. When shopping for the right child-care program, be sure to make the most out of the tax breaks granted to you by Uncle Sam.
- The fifty-fifty deal. If you have trouble paying for college, consider having your child do the first year or two of core classes at a community college before heading off to university.
- Score free entertainment. For the creative parent, fun free-of-charge activities abound. Libraries are excellent resources, as is the great outdoors!
How to Make Your Family Budget Last
Every January and February, thousands of people swear that this is the year they will start cooking at home instead of hitting up restaurants and drive-thrus. All these people stuff their grocery store carts during January and February. As the year proceeds, sales dwindle as gradually, they revert to TGI Friday’s and Panda Express.
January is often the busiest month for me as well. It is prime time for new clients to look me up, after making the resolution to get their finances under control, once and for all. But as opposed to the grocery store’s customers, most of my clients are able to stick to the goals and budgets they set for themselves. Why? Because we talk about the importance of being realistic.
Rather than setting huge, abstract goals like “I’m never going to eat out again” or “I’m going to retire a millionaire” or “my children will not have to take on any student debt,” we break the aspirations down into small, manageable pieces. If, for instance, your goal is that your children won’t have to take out any student loans, open savings accounts for them and start to contribute $20 per week. If you want to save on dinners, instead of opting never to eat out again, let your children cook twice per week and add the money you save to the family vacation budget.
I usually recommend 4-5 small changes per year, as long as everyone in the family is onboard. Next year, when these changes have become habits, you can implement another 4-5 – and just like that, you are on your way to healthier family finances.