Money is one of those topics people find really difficult to discuss with another person. Perhaps so because it represents much more than the topic. It can represent power and control, and other times deep embarrassment, insecurity, and fear. Such emotions can really come to the fore when dealing with the important matter of family finances.
Managing family finances is a crucial part of family life. Whether it is paying bills, buying groceries, or planning for the future, the financial health of any family plays a significant role in their happiness and well-being. Unfortunately, family finances are also one of the leading causes of conflict and stress in many households.
In fact, according to numerous surveys like one conducted by SunTrust Bank, financial stress is the leading cause of family relationship strains in the United States, and this is no different from other parts of the world. It is therefore essential to build the skills necessary to manage family finances without conflict. This piece discusses practical tips for managing your family finances in a way that will serve you, promote financial stability, and priceless peace of mind and harmony you seek in your home.
What are Family Finances?
Family finances refer to the income, expenses, and financial accounts owned and managed by a family unit, and it is related to the maintenance and upkeep of an entire family household. It includes all sources of income like wages, investments, savings accounts, and trusts, as well as expenses such as mortgage or lease payments, utility bills, grocery bills, retirement plan contributions, insurance, education, taxes, debt repayment, and miscellaneous.
Managing family finances involves a good deal of tracking and monitoring income and expenses, saving for future needs and emergencies, and creating a financial plan that supports the family’s goals and values.
It is important to note the significant difference between personal and family finances. While personal finances refers to an individual’s income, expenses, savings, investments, and debt, family finances are the combination of multiple individuals’ finances, including those of spouses, children, and sometimes, other family members.
Why a Family Budget is Important to Family Finances
One of the most crucial tools to be able to manage family finances effectively without conflict and much stress is by creating a family budget. The budget is the financial plan that outlines how much money a family has coming in and going out. It helps to keep track of all the spending in the home and ensures that there is enough money to cover all agreed expenses.
It is vital that what is being spent on is a joint decision. According to a study by the National Endowment for Financial Education, a staggering 70% of couples argue about money. This happens mainly because many couples do not share the same financial values or goals and have different money habits. Creating a family budget together helps to resolve these differences by setting financial goals that everyone can agree on.
To create a real monthly family budget, follow these simple steps:
- Calculate Your Income: Calculate the total amount of money that your family brings in each month from all sources of income.
- Determine Your Expenses: Make a list of all your family’s monthly expenses, from housing to utilities, food, transportation, healthcare, entertainment, and other miscellaneous expenses. Estimate each expense as accurately as possible.
- Set Financial Goals: Discuss with your family what financial goals you want to achieve, such as saving for a down payment on a house, paying off debt, or creating an emergency fund.
- Allocate Funds: Allocate funds towards each expense category and savings goal. Make sure to prioritise necessary expenses, such as housing and food, before allocating money towards discretionary expenses.
- Track Your Spending: Keep track of your family’s spending each month to ensure that you are sticking to your budget.
Family Finances using a Monthly Budget example
Here’s a good illustration of a family’s budget
Say a couple have a combined monthly income of $5,000:
Monthly Income: $5,000
Expenses:
- Rent: $1,200
- Utilities: $200
- Groceries: $500
- Transportation: $300
- Health Care: $200
- Childcare: $800
- Entertainment: $300
- Clothing: $100
- Other Expenses: $300
Total Expenses: $3,900
Savings:
- Emergency Fund: $200
- Retirement Fund: $500
- Vacation Fund: $300
Total Savings: $1,000
Financial Goals:
- Pay off $10,000 in credit card debt within a year
- Save $20,000 for a down payment on a house within three years
- Increase retirement savings contributions by 5% annually
Allocation of Funds:
- Necessary Expenses: $3,200 (Rent, Utilities, Groceries, Transportation, Health Care, Childcare)
- Discretionary Expenses (Disposable income): $700 (Entertainment, Clothing, Other Expenses)
- Savings Goals: $1,000 (Emergency Fund, Retirement Fund, Vacation Fund)
By prioritising necessary expenses such as housing, transportation, and childcare, and allocating funds towards their savings goals, this couple actively works towards their longer-term financial objectives while maintaining financial stability in the short term.
How to manage family finances without conflict
We admit that effective management of family finances can be a challenging task, especially when it comes to doing so without stress. It requires careful consideration and discussion of key issues to get everyone on the same page. Here are some of the most important strategies families can use to manage their finances without conflict:
1. Open Communication
It’s almost taboo to talk about things like family assets, inheritances, and wills, but silence is harmful. Avoiding these difficult conversations about family finances can have detrimental outcomes and unexpected consequences for your family.
Respectfully discussing as a couple how to mix and separate money, handle expenses, and set financial goals is critical to avoid misunderstandings. These talks are best initiated early on as you’re beginning your life together, and it is vital that you both are as honest as possible about what it is you want.
There are three major ways you can handle your finances. You can choose to stick to your individual accounts and make agreed payments from there. Conversely, you could decide to open a joint account from which all the family finances get sorted. The 3rd option is going with a hybrid of the previous two which follows the concept of “mine, yours, and ours.” There is a shared responsibility. The latter has the added benefit of allowing each person to enjoy spending their money on personal affairs without any constraints or need for their partner’s permission.
How you both decide to manage your finances will depend on each one’s attitude and money habits. Create a plan, stick to it and carry each other along. It’s good that both parties manage the finances together even if that means delegating who does what. Don’t veer into financial infidelity – when one spouse hides financial information from the other. It is not a good approach towards your family finances to keep your husband in the dark about that pricey designer bag you bought or not tell your wife about the secret stash you set aside and spent gambling. This is a sure way to incite mistrust and conflict within the family.
Communication should not be done amongst the adults alone. Children can be involved in family discussions to offer input about the family’s finances wherever possible. It can serve as a good avenue to teach them the basics and importance of good money habits like budgeting and saving which will prepare them for their own financial futures.
By being transparent and discussing financial decisions openly, families can avoid financial infidelity and conflicts, working harmoniously together towards their financial objectives.
2. Create a monthly family budget
Using the illustration in the previous section, you can follow the outlined steps to create a family budget that works for your home. First work out what money you have coming in – salary, wages, income-generating assets, et al. Then outline a spending plan which should include the essentials, utilities, savings, investments, debt repayments, and the like. The goal in all this is that you maintain your current financial stability avoiding impulse buying whilst your long-term plans stay on track.
This monthly family budget is one that you should review regularly. Tweak the budget from time to time to reflect any change in your circumstances. For example if one of you loses their job or if you decide to have children resulting in your expenses going significantly up. Make joint decisions as to how the budget should be adjusted.
3. Establish a bill-paying system
It’s a good idea to have a seamless system in place for paying the family bills. One you can automate as much as possible. Setting up different bank accounts (or pots) that cater to different expense categories gives some good clarity to your family finances and makes the money picture a lot more straightforward to everyone. It becomes easy to see how much money is allocated and spent on any particular expense.
We all know this money-tracking business can get a wee bit complicated at times. Helping yourself out by segmenting your money into different buckets can relieve a good deal of stress and make the picture clearer for all parties. It also helps you check your spending because it becomes harder to splurge money in an account that is set aside for one thing on something else.
4. Tracking expenses and income
One of the most important aspects of managing family finances is tracking expenses and income. By keeping track of where money is being spent and how much is coming in, families can better understand their financial situation and make informed decisions about how to allocate their funds. This can also help identify areas where they can cut out unnecessary spending and save more money. You could use whichever method you prefer to do this. Read more on how to track effectively here.
Double-checking account statements for any mistakes, term changes, or fraud is an important part of this practice for both of you. You might discover for instance, that you have been losing money to that free-trial-turned-full-subscription you forgot to cancel! And boy can those small charges add up. You could notice some unauthorised transactions which have happened that you can alert your bank account. Track your expenses diligently so your family’s finances can be in good shape.
5. Save and invest money
Saving and investing money is another critical component of managing family finances well. Families should create a savings plan that includes short-term and long-term goals, such as building an emergency fund, saving for a down payment on a house, higher education for the kids, and contributing to retirement accounts. In fact, couples should start planning for retirement as early as possible!
Money placed in a retirement fund at a younger age will earn much more interest over its life than the same amount of money put in later on all thanks to the miracle of compound interest. Parents should also consider investing their money in investment vehicles like stocks and mutual funds to help grow their wealth over time.
When it comes to future money for the kids, you can choose to set up trust funds and other types of tax-free savings accounts for your children.
6. Manage debt
Debt can be a huge burden to any individual and their family. Be it in the form of student loans, car loans, mortgages, and all else. Paying off high-interest debts especially, such as credit card balances, as quickly as possible is a collective effort that is important for managing family finances in a good way. This is why debt repayment must be factored into the budget.
Families should also be mindful of their credit scores and work to maintain good credit by making payments on time. You should also avoid taking on debt or keeping it to the barest minimum and help keep one another accountable.
7. Insurance, Asset protection, and death planning
No one wishes for bad things to occur but life happens all the time and we must accept this reality. Making plans early for unexpected events, such as illness, disability, divorce, or a death in the family is prudent and wise. This can involve purchasing insurance policies, such as health insurance, disability insurance, and life insurance that is well thought out to help protect your family’s finances and provide financial security for your loved ones.
Creating a legal will and setting up a power of attorney (legal document appointing someone else to make decisions on your behalf if you’re unable to due to illness or accident), is a good move that makes your utmost wishes clear to everyone. You can also choose to engage a financial adviser to help you out with matters like setting up a trust for your beneficiaries and inheritance and estate planning, including how to make it tax-free.
A great result of the open communication I emphasised earlier is that should anything happen to either of you, you’ll each understand the other’s financial affairs completely and know what each other’s wishes are on matters.
In a nutshell, managing family finances without conflict and stress requires open communication, creating a family budget, establishing a bill-paying system, tracking expenses and income, saving and investing money, managing debt, and planning for unexpected events like death. Working together as a family to set financial goals and make informed decisions helps you achieve financial security and avoid conflicts over money.
How to split and manage finances in a blended family
Managing finances in blended families can present unique challenges that require careful consideration and planning. Blended families often have more complex financial situations, with multiple income sources, debts, and assets. Additionally, there may be far different financial goals, priorities, and spending habits among the members of the family. All of which can contribute to significant conflicts and misunderstandings about money.
Creating a financial plan that works for everyone requires open communication and negotiation among all family members to identify shared financial goals and create a budget that reflects everyone’s needs and priorities. Families may need to make compromises and adjustments here and there to accommodate each other’s financial situations and goals, but by working together, they can develop a plan that is fair and equitable for everyone.
An important component of managing finances in blended families is transparency and trust. Every family member needs to be honest and upfront about their financial situation, including income, debts, and assets to help avoid misunderstandings down the road. Families may also want to consider creating a system for tracking expenses and contributions to the family budget, such as a shared spreadsheet or budgeting app, to ensure that everyone is contributing their fair share.
Last but not least, it is important for blended families to have a plan in place for unexpected events, such as job loss, illness, or divorce. Families should consider creating an emergency fund and purchasing appropriate insurance policies, such as life insurance and disability insurance, to provide financial security in case of unforeseen circumstances. Additionally, they may want to consult with a financial planner or attorney to help navigate complex financial issues, such as estate planning and tax implications of blended family situations.
Overall, managing finances in blended families without issues is possible if done right. By being transparent, flexible, and proactive, members can avoid conflicts and achieve financial security for themselves and their loved ones.
In conclusion
Managing family finances well is crucial to achieving harmony, financial security, and stability for everyone involved. Armed with the right understanding and skills, all families including blended ones can develop a comprehensive financial plan that meets everyone’s needs and priorities.
To accomplish this goal without conflict, family members need to communicate openly and honestly about how to mix and separate money, be transparent about spending habits, and work together towards shared financial goals.
With strategies like creating a family budget, establishing a bill-paying system, tracking expenses and income, and planning for unexpected events, families can successfully manage their finances without stress and build a solid financial foundation for the future.
Did you find this piece to be helpful? I’d love to hear about it in the comments!