Money and Your Family: Building on Solid Financial Principles

Family Financial Goals

One of the important roles of fathers in both traditional and non traditional families is the role of provider. Even if our partners work and provide income to support the family's financial needs, dad at least feels the primary responsibility for providing financial support for his family.
But more often than not, fathers end up wondering why there is more month at the end of the money than there is money at the end of the month. If you have that experience, you are not alone. Some recent research suggests that many families have expenses that exceed their income by several hundred dollars each month.

So how do you manage your money, rather than being managed by money? What principles do financially secure families follow that others don't?

Setting Financial GoalsThe first step families should take in managing their money is to set financial goals. These goals will be different for every family depending on their stage of life, their needs and the demands on their resources. For example, a family just starting out may have as their goals:
• Saving for the down payment on a home
• Increasing their income through additional education and training
• Beginning a small savings account for college expenses

A family in later years of life may have goals such as:
• Saving for wedding and college expenses
• Paying off the mortgage on their home
• Putting more money into retirement accounts

In each case, families must decide what is important to them. Financial planners recommend that goals be in one-year, five-year and longer-term horizons.

One process that I have seen work successfully is to convene a family council for the purpose of setting financial goals. Each member of the family writes down their individual goals that cost money. Then, individually, each family member prioritizes their goals using stars. A "one star" goal is one that would be nice to have, but could be delayed. A "two star" goal is one that is needed or wanted if the family could find the money to pay for it. A "three star" goal is something the family must have or do.

Then one family member should collect all of the written and prioritized goals and develop one list with like goals categorized together. From that list, the entire family goes through the list, discussing each one and coming to agreement on its relative importance to the family. Next, a list of agreed upon goals should be made based on the priority and the time horizon (1-year, 5-year or long-term).

Finally, the question of how to achieve the goal should be determined. Perhaps for one goal, the family would decide to set aside money from an upcoming tax return. Or a savings plan could be developed. Perhaps one family member would work part-time until the goal was met and would then quit working. In any case, the method for achieving the goal in its appropriate time frame would be decided.

Your Family Budget
Once the family has determined its short and long term financial goals, it is time to begin establishing the budget. The purpose of the budget is to match financial resources (income, interest earnings, etc.) with savings and spending needs on a periodic basis. Family budgets can be monthly, weekly or in some other frequency. What has worked best for us is to budget bi-weekly since that is the frequency of my pay checks. We look each payday and set a budget for the coming four to six paydays.In terms of our income, we have some fixed income amounts such as the biweekly paycheck from my employment. This we budget as income. Also, we have some variable income from outside sources which is generally available but not always. These amounts we budget to go into our short-term savings accounts. In the process of budgeting for expenses, it is important to look at needs and timing, and to identify priorities. In our family's budgeting process, we look first at our fixed obligations. For example, the house payment is a fixed amount each month. Payments on other loans for cars, education or other obligations come in this category as well. These costs generally have a regular payment date and amount. We also set aside a fixed amount each month for savings and for retirement; these are included in our fixed obligations.

Next we consider expenses over which we have some control. These include utility bills, groceries, subscriptions, automobile expenses, clothing and the like. These we budget to fit around our fixed expenses. We try to take in seasonal variations. For example, our natural gas bills tend to be higher in the winter, while our electric and water bills tend to be higher in the summer. We try to be realistic in our budgeting, but we also know in a month when we may have higher auto expenses, we may have to cut back on groceries or clothing.

One thing we have also tried to work on is known expenses which may be coming later in the year. Foe example, we try to program savings throughout the year to cover our Christmas gift budget. Or if tuition is due for our daughter in college, we program that into our short term savings as well. Then, we are not surprised or stressed when the bills come due.

Good Financial Habits
Now that you have good financial goals and a budget, you need to develop some good habits for managing your money. Here are some of my recommendations for successfully working your financial plan.

Pay all bills the day the money arrives. It is important when planning your budget to consider due dates and make sure you are meeting those deadlines. Paying your bills on time saves you a lot of money in late fees. And you always run the risk of bouncing checks if you pay bills before your income is deposited.

Consider using direct deposit. If your employer does not require it (and more and more are requiring it), ask your employer about directly depositing your paycheck into your bank account. Normally, the funds arrive at your bank earlier than you could to deposit the account, and many banks now offer free checking if you have direct deposit. It is easy, convenient, and you have access to your money faster.

Have all the bills in one place, ready to pay when the time comes. Keeping the bills organized and together is important and makes bill paying easier

Consider paying bills online. More and more financial institutions are offering free online bill paying. This can be very convenient and saves you the cost of a stamp. You can also program in automatic payments on those fixed expenses saving you time each month.

Grocery shop once a week or every two weeks. Going to the store less frequently and with a well planned grocery list will save you lots of money. Also, a little planning ahead will avoid the need to run out for very expensive fast food.

Consider "level payment plans" on heating/cooling expenses each month to avoid large bills due at one time. Most utility companies and agencies offer level payment plans which can help immensely with budgeting.

Set up an "envelope system" to help you track where your money goes. Label each envelope with a specific spending category such as housing, food, transportation, clothing, entertainment, personal care, and credit/loan payments. At the beginning of each month, put the money you have budgeted into the appropriate envelopes. When payments are due, withdraw the amount needed. This strategy, even if only employed for a few months, can help you really see where your money is going and how to better manage it.

Conclusion
With a little planning and by following some basic important financial principles, families can do a much better job managing their money each month and putting savings away for planned expenses and for emergencies.