Controlling Your Family Finances
Every business uses financial statements, but what about the home? It could be useful to think about your home as a business for budgetary purposes. A great deal of good can result from setting up a household budget, analysing your inflows and outflows, and learning to balance your spending with your income.
Here’s how you can achieve your overall household financial goals and plan more effectively for your family’s future:
1. Setting a Household Budget
Setting a household budget often entails identifying how much you can afford to spend from your total income, managing outflows and saving for specific goals. A little bit of research creates the best basis for effective savings strategies and financial goal setting. You might take time to compare electricity prices and other expenses to find out the amount you can realistically expect to save.
You could work out how much you can afford to borrow by using a home loan calculator if you’re intending on buying a new home. You could identify the best ways to cut back by analysing your past spending. Hence, setting a household budget requires both looking backwards at your past spending, as well as looking forward in terms of your goals.
Managing your household’s inflows might be a fairly straightforward matter. You and your partner may agree to put a fixed amount into a savings account for a deposit on your home, or for an annual holiday. You might make your children responsible for saving up for non-essential items from a part-time job or from their weekly allowance.
What you’ll probably be most concerned about in this area is finding the best way to keep ‘left-overs’ or the money saved after outflows have been deducted from your inflows. This may be via a high-interest savings account or some form of investment.
Typical outflows for the household will include everything from rent or mortgage repayments to utilities and groceries. Again, you’ll probably be consulting your budget to identify how you’re managing your outflows and where you can cut back and save.
- Rent or mortgage –This is probably one of the biggest living expense items for any household.
- Utilities –Gas, electricity, water and telecommunications are another major expense category for households.
- Insurance –Health, car and home insurance are some of the most common types of insurance that households pay for.
- Entertainment –Entertainment, eating out and leisure can account for a percentage of the overall household expenditure.
- Education –If you have children, there may be education expenses that you need to meet on a regular basis.
- Miscellaneous –These are the one-off items that don’t appear regularly on your budget, but which nevertheless can be significant. Replacing appliances, renovations to the home and new car purchases are just some of the possible examples.
- Emergency fund –Many households keep an emergency fund in case of unexpected situations. This may be as much as 2 months’ worth of your combined salaries.
4. Balancing Spending and Income
The benefit of a written budget is that it allows you to account for every inflow and outflow, so that you can analyse exactly what’s going on in the home. You can then undertake specific strategies to balance spending and income in order to increase your savingsand achieve your financial goals. You’ll need to involve family members for your strategy to succeed, so make sure you communicate your household budgetary goals with them.