Family Financial Planning 101
An apartment or house, electric or gas, phone, cell phone, cable, computer, car, insurance, gas, food, clothes,
entertainment - the list of bills for the average person is seemingly endless. And that doesn't even include kids.
A recent study by the U.S. Department of Agriculture calculates the cost of raising a child to the age of 17 at $250,000, excluding college. You could drastically cut your expenses by living a Spartan existence in the woods or a commune or an Amish community. But life in
the civilized 21st century is extremely expensive. You need a game plan to thrive or even survive. Trying to fly by the seat of your pants through your financial existence is not likely to result in a high degree of success or prosperity. You need to focus, work smart, and put together a comprehensive strategy to reach your goal of financial security for your family.
Analyze your spending
Your first step is to get a handle on exactly what you're spending. Go through your last six months' records and itemize each and every expense. Look for spending you wish you hadn't done. Examine each dollar and ask: Did it pay for a need or a want, a necessity or a luxury? Don't overlook the small amounts because they add up. Do you go to Starbucks every day? Buy magazines, a six pack, lotto tickets, CDs, DVDs, trinkets, etc.? It could just be that if you cut back on $5 here and $10 there, it might save you several hundred dollars a month. In any business, sport, or activity in life, you need to start with the fundamentals, the basics. And the basic fundamentals of family financial planning involves knowing what you're spending your money on and disciplining yourself and your family to cut back or cut out wasteful spending.
Make a budget
You can get a handle on spending and cut back more effectively by making a budget- a written budget. If you detail everything in writing, what you're doing is managing your money. Everything and everyone works better when under good management.
• Do it monthly. Start each month by setting that month's budget based on your expenses vs. your income.
• Identify how you spend money.
• Set goals based on your financial objectives.
• Track your spending, trying to stay within your budget.
• Use a software program like Quicken or Microsoft Money. Their budget-making tools are fantastically helpful and effective.
• Watch out for cash leakage from ATM withdrawals. You need to keep a record of where that cash is being spent.
• Stop using credit cards! I could write an entire book on this subject. You're killing your financial future by using credit cards.
• Differentiate between necessities and luxuries. This is where you have to get tough with yourself and stop drinking so much beer or going to so many football games or filling up your shelves with more movies or CDs.
Teach and include your children
Nothing in this article will work if your kids run your household. Far too many people spend far too much money on their kids. For whatever reason - appeasement, buying their cooperation or love, trying to keep up with the neighbors, or just taking the path of least resistance - we drop huge sums of money on more toys, more entertainment, more theme parks, more whatever it takes to keep our kids happy. You may need to encourage ways to spend time with your kids that are free: the beach, the park, walks or bike rides, or just playing in the yard.
• Needs vs. Wants. Again, just as with yourself, it starts with teaching your kids the difference between needing something and wanting something. They need new clothes and food every day; they want new toys and another video game. Explain to them flat out that some things are just too expensive. This frankness is hard for many people because it takes admitting to your child that you just don't have unlimited funds with which to give them everything they want. A lot of people feel embarrassed or take a hit to their self-esteem by having to admit to their children they can't afford something, especially if their kid's friend has that toy or has been to Disney World three times that year. So you just have to suck it up and tell them the facts of financial life: you simply cannot afford to buy them everything they want. Besides, getting everything you want when you want it is infantile. The need for instant gratification is a prevalent flaw among the world's prison population. Accepting delayed gratification is a sign of maturity and decency. So explain to your kids that earning and saving up for the things we buy helps us to appreciate them more.
• Set a good example. If your kids see you delaying your gratification by not buying a new car or another fancy article of clothing or going to another baseball game with your buddies - if they see you sacrificing and saving money - then they will learn that this money budgeting business is for real. We learn an enormous amount - both good and bad - from our parents. And we learn as much or more from their actions as we do from their words.
• Give your kids an allowance based on work. Instilling the work ethic in your kids is definitely one of the top 2-3 things you can do for them (along with teaching them morals and values, of course). They simply have to learn early that you get what you pay for and you pay for things by working and earning money. Self-reliance through hard work is an essential lesson that cannot be taught to kids too early or too thoroughly.
Buy, don't rent
This is really a no-brainer. If you're renting, you are literally throwing money away. There are so many great financing options available, even for people right off of a bankruptcy, that it's foolish as can be not to buy a condo or house. You can deduct all of your interest on your taxes and sit back and watch your home appreciate in value, building equity (profit) for you. Call a few local banks and lenders and get started buying a place! And once you do, if you're planning on staying in that place for a few years or more, seriously consider paying a bit more per month and financing for 15 years rather than 30, and/or making biweekly payments, which can cut up to seven years off the average mortgage.
Shop wisely
Stop paying too much for everything!
• Buy everything you can on sale and clearance.
• Read the newspaper ads.
• Use coupons.
• Don't buy something until you see it on sale.
• Spend more time truly shopping and researching your purchases at stores, outlets, and online shops that sell for the lowest price.
• Shop off-season; for example, start buying winter clothes at the end of summer.
• Go to yard/garage sales and thrift stores.
• Make whatever you can make.
• Eat at home.
• Never pay retail!
• Try the store brands. For just two examples, I'd personally recommend Wal-Mart's and Publix's own brands. They're good products and cost a lot less than the name brands.
• Buy used whenever you can, especially big ticket items like cars and appliances.
• Pay cash, which hurts more as you spend it, thus helping you to stay within your budget and spend less.
• Exercise restraint: stay on the long distance call for less time; save gas by staying home or planning your errands and shopping trips more carefully; cut down on eating out and spending a fortune on tickets for sporting and other entertainment events.
Pay yourself first
Save. Period. No matter how much you make or how hard it seems, save at least 10% of every paycheck. Act like it's not even there, like the money doesn't exist. Don't touch it for any reason. Try automatically transferring 10% of every paycheck to a retirement account.
Invest
Some readers of this article might now be saying to themselves, "Invest? That would be nice, but I haven't got a spare dime to invest." Well, that's a problem then, isn't it? And that makes the previous points I've made all the more salient and urgent. You simply must invest if you ever want to get anywhere financially. Again, take another 10% of your earnings (in addition to that 10% going into a retirement fund) and sink it into mutual funds, the market, something to make it grow. Consider getting a financial adviser to help you invest more safely and effectively. Or you could try to do it yourself. Whatever you decide, first do your homework. There are a slew of great Internet sites that offer financial tips to families, including T. Rowe Price, A.G. Edwards & Sons, MSN, CNN, Merrill Lynch, Morgan Stanley, Bank of America, and Chase. They all have amazing websites offering quite an impressive education in investing.
Yes, budgeting, saving, smart shopping, investing, and disciplining yourself and your kids is hard. Yes, it requires sacrifices and perhaps even a major change in lifestyle. But these strategies just may be the only way to prevent you from going broke.
