Managing Family Finances: Our Beginner's Guide

Maintaining family finances requires teamwork, dedication and a lot of purposeful actions. Being intentional through your actions has been one of the biggest things we have done as partners that has helped improved the stress around money.

When it comes to handling money, being on the same page with your each other can make the difference between stressful nights or feeling like this is an obstacle that you can overcome. In today’s world, it is difficult and hard - there are a lot of factors that really make it feel like its hard to achieve the things that you want to. But what we have found is that if we are on the same page, work hard together and know the small steps to take each day, month and year… it will pay off will and be worth it in the end.

By engaging the family in setting financial goals, managing budgets, and making crucial financial decisions, we have been able to overcome a lot of challenges. Not to mention the lessons we are teaching our oldest. This approach for us is building a solid financial foundation and grows trust and accountability within our family.

In our financial journey, we have discovered that clear and open communication is as important as any other financial strategy. Finance is my strong-suit so I’ve made sure to not only sit down with my wife but also our parents. Talking bills, wills, trusts, retirement- all the things.

Discussing our incomes, expenses, and individual financial perspectives helps us obtain our vision and move forward knowing that we both are working towards that same goal. It could be that dream vacation, paying off debt or renovating a home. Knowing that that you have your parents back and they have yours is an amazing feeling, but it can take a lot of work to get there.

We created a family budget and set benchmarks together, and while we may not always meet them and we have to revisit to change as life happens - from a car breaking down to having your little one start preschool. Unexpected things or things you didn’t account for originally happen, and knowing its okay to pivot, reset and start again without thinking you have failed is so important.

Setting Financial Goals Together

In managing my family's finances, I've found that the key to success lies in setting clear goals—both short and long-term. It's like laying out a financial road map that we can navigate together.

Short-Term Objectives

The short term financial needs of my family—like monthly bills and debt repayment—are our priority.

We create a detailed monthly budget to track our spending and ensure we're not living beyond our means. The saying of spend less than we make may sound obvious, but it is so easy to try and keep up with the Jones’.

Here's how we created our plan to tackling short-term objectives:

• Budget Planning: Review bank statements, bills, and receipts from the past few months.

• Expense Tracking: Use spreadsheets or budgeting apps to categorize and monitor spending areas.

• Debt Strategy: Determine which debts to pay off first, often starting with high-interest ones or ones with the lowest total balance.

Starting with this base line of bills and necessity spending first helps you see where your money is going, areas for improvement and ways that you can actually stay in front of your family finances.

For example, when your goal is to save for a vacation, try breaking down the total cost into monthly savings targets to make it more manageable.

Long-Term Planning

Long-term planning goes beyond the basics of daily living expenses. It's about looking ahead and preparing for the future.

This is where we factor in retirement, our children's education, and even potential investments. My plan usually includes:

• Retirement Savings: I contribute regularly to retirement accounts like an IRA or a 401(k). My wife invested in a IUL policy- a life insurance and savings account.

• Education Fund: Setting aside a portion of income each month goes into a 529 plan for my kids' education.

• Investment Portfolio: Diversifying investments to include stocks, bonds, and other assets can help grow our family's wealth over time.

Successfully managing family finances as a team requires open communication about financial goals. I often discuss financial strategies with my wife to align our plans for the future. Sometimes she wants to listen, other times she tunes me out.

Creating a Joint Budget

When we first approached creating a joint budget, our focus was on clarity, accountability, and shared goals. It's about laying all the cards on the table and crafting a budget that respects both our necessities and dreams. We quickly discovered that I was the frugal one that wanted to save every penny whereas my wife was a little more relaxed. Finding a common ground where we both were comfortable allowed us to actually have goals we could meet. In the beginning, nothing was more discouraging than having missed goals, and we found a lot of it was due to both of us having unrealistic goals and not communicating properly in the beginning.

Income Streams

For us, it's imperative to start by listing all our income sources. This includes our regular paycheck, any freelance work, and passive income.

Here's an example of how we could break it down:

• Primary job: $3,500/month

• Freelance design work: ~$500/month

• Rental property: $700/month

Knowing our total monthly income sets the stage for understanding what we have to work with.

Expense Tracking

Next, we worked diligently track all our monthly expenses. We categorize them into essentials and non-essentials to see where our money is going. Our list could look something like this:

• Essentials:

  • Rent or Mortgage: $1,200

  • Groceries: $300

  • Utilities: $250

  • Insurance: $150

• Non-essentials:

  • Dining out: $100

  • Streaming services: $40

  • Gym membership: $50

By having these numbers, I can identify areas to cut back if needed.

Savings Strategies

For savings, we follow a few key strategies that have worked for us:

1. Emergency Fund: we aim to save at least three months' worth of living expenses.

2. Retirement Savings: we contribute to our 401(k) to match our employer's contribution fully, and my wife’s IUL Life Insurance policy.

3. Goal-Oriented Saving: Whether it's a vacation, a new car, or buying a home, we set aside a portion of our income each month to meet these future expenses.

These numbers are going to look different for every situation, but knowing where you are starting from really allows you the full picture to be able to step back, and execute that game plan together as a family.

Managing Debt as a Couple

When we approach managing debt, the biggest step for us was establishing a strategy that worked for both of us. We wanted to set up a realistic repayment plan that we could commit to together.

Debt Repayment Plans

The two options that we considered where

1. The Debt Snowball Method

2. Debt Avalanche Method

We started by sitting down and detailing our combined income and expenses in a budget. From there, we could see how much we were able to allocate towards debts each month.

The Debt Snowball Method focuses on paying off the smallest debts first before moving on to larger ones.

The Debt Avalanche Method prioritizes debts with the highest interest rates. This method can save us on interest in the long run.

For us, we decided to go with the Debt Snowball Method, and the main reason we decided to go with this is because it allowed us to have small wins in the beginning. Being able to see those smaller balances go to zero, and move on to the next gave us motivation to push through.

The key for us was choosing the plan that kept us motivated and aligned with our financial goals.

Ultimately, there are a number of different ways and methods you can choose, but these have worked wonders for us.

Investing in Your Future

Next is my favorite. Investing in our future is an essential topic for long-term financial stability. By thoughtfully placing resources to retirement and education, we started to lay the foundation for not only the here and now, but the long term visions that we share together.

Retirement Accounts

For us, Retirement Accounts are one of the cornerstones we wanted for your future. By consistently contributing to a 401(k) or IRA, we harnessing the power of compound interest.

Education Savings

When it comes to education, establishing a 529 plan or similar savings vehicle gives my children a head start. We are not only saving for their college tuition but also helping to ensure they graduate without a mountain of debt.

This strategic move allows us to focus on their future without the financial strain that often comes with higher education.

We have three younger kids, and being able to help them with whatever they may want to do in the future is something that we take a lot of pride in.

Life Insurance: IUL

An Indexed Universal Life (IUL) policy is a kind of life insurance that not only provides coverage but also lets your cash value grow based on a stock market index. The perks? You can enjoy potential higher returns, tax-deferred growth, and the flexibility to adjust your premiums and death benefit as your needs change. The sooner you get one, the better! GoFund Me’s would be a thing of the past if more people were aware of life insurance policies.

Emergency Funds and Safety Nets

Creating an Emergency Fund was a crucial step in protecting my family's financial future. They offer a buffer against unexpected expenses and help maintain financial stability.

Building an Emergency Fund

Our goal is to set aside enough money to cover three to six months of living expenses. We started by calculating our monthly expenses; this total gives me a clear savings target.

Even small contributions can grow over time into a substantial fund. We were always amazed at how even a little saved each month can provide peace of mind.

To simplify the process, we followed these steps:

1. Set a monthly saving goal: This is based on my income and monthly expenses.

2. Automate savings: I set up an automatic transfer to my emergency fund from each paycheck.

3. Cut unnecessary expenses: I find ways to free up extra money by reducing discretionary spending.

4. Boost income: Sometimes, I take on extra work or sell unused items for additional savings.

Effective Communication on Finances

To us, this was the biggest thing that helped start us on our financial journey as s a family. Ensuring that family finances are managed well hinges on our ability to communicate effectively about money matters with our family. It's not just about crunching numbers; it's about creating an environment of trust and collaboration.

Monthly Finance Conversation

We’ve learned that this isn’t something that we’ve mastered overnight, it’s something that we still have to work on to do this, but what we often do is meet monthly or every couple of months and have check-ins. My wife rolls her eyes when I tell her about our check-in’s but at the end of it, we both feel great and on the same page.

We typically meet monthly to review our spending, savings, and to adjust our budget as needed. Find a schedule that works for you and feel free to switch it up if something isn’t working.

This is where I bust out the spreadsheet that shows our income and expenses; it keeps everyone on the same page, and keeps the communication and conversation going as we chat on our small wins and loses. A good reminder is that we’re all in this together no matter what.

Adapting to Financial Changes

In our experience, managing family finances requires flexibility and the willingness to reassess goals. Whether it's a shift in income, unexpected bills or the addition of new family members, the willingness to pivot doesn’t mean failure but more importantly to view as success.

Teaching Children About Finances

Instilling financial literacy in children is one of the most important lessons we can provide them. It prepares them for adult responsibilities and helps them understand the value of money. This is something I place a lot of precedence on.

Allowances and Earnings

We believe in teaching our kids about money through practical experience.

For example, when we give our children an allowance, we tie it to chores.

Allowances become a tool for them to learn that money is earned.

We encourage them to tackle extra chores for bonus money, which mirrors real-life work situations.

• Weekly or Monthly Allowances: Depending on the age, $5-$10 tied to specific chores.

• Extra Chores: Opportunities where they go above and beyond to earn more, like washing the car or helping with gardening.

Saving and Spending Education

Teaching our kids about saving is just as crucial as earning.

We find it valuable for them to learn that not all money should be spent immediately.

For this, we use saving jars for both smaller and bigger purchases which makes it a visible and tangible lesson in delayed gratification. A few years ago, we would use tickets and place them in the jars. This was super fun and not tempting for him to take anything out.

As for spending, we guide them on making smart purchasing decisions, but still remembering that they are still just kids and should have the ability to get that silly toy or game- no matter how many they currently have.

We discuss needs versus wants, and we let them make minor spending decisions to learn from experience.

Frequently Asked Questions

How can we create a united approach to managing our family's finances?

The biggest thing that we can do as a family is have conversations, even though they may be uncomfortable at first, active participation from everyone is so important.

What are the key steps to working together financially in a family?

Key steps include setting joint financial objectives, allocating responsibilities based on individual strengths, and regular money meetings to review progress and adjust plans as needed.

What strategies can families use to budget effectively together?

For effective budgeting, families can use strategies like tracking spending together, setting a shared vision for future finances, and using budgeting tools or apps designed for collaborative use, which helps in maintaining a clear overview of our finances.

What are some common challenges families face in financial teamwork, and how can they overcome them?

Families often struggle with differing spending habits and financial priorities.

To overcome these challenges, it's essential to create a safe space for discussion, practice empathy, and reach compromises that honor everyone's financial needs and desires.