Get the Whole Family on the Budget Bus
Angelique is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
If you’ve got a family, and you’ve got debt, you can’t go it alone. You have to get the whole family on the bus. Agreements will have to be made, by everyone, about what’s going to be spent and where, what sacrifices will need to be made and then what the payoff will be in the end. Yes, the payoff! There will definitely need to be a payoff. Maybe a family vacation? The promise of some mouse ears might help to get everyone on board!
As stated on debtsteps.com, “If you are married, or have a significant other, talk to them! Open communication about finances is essential to maintaining your money management plan for debt relief, and reaching your financial goals together, not to mention the longevity of your marriage.” I’ve heard stories about a husband or wife holding onto (and using) a credit card that the other party didn’t know about and not finding out about it until some critical financial juncture, like refinancing the house. This is a sure-fire way to ruin the family finances, not to mention your marriage. Get talking!
Once you’ve started tracking your spending, sit the entire family down and explain to them that you need to create a family budget. Good guidelines for your budget provided by debtsteps.com are:
Housing 35% - Mortgage or rent, taxes, repairs, improvements, insurance, and utilities;
Transportation 20% - Monthly payments, gas, oil, repairs, insurance, parking & public transportation;
Debt 15% - Credit cards, personal loans, student loans & other debt payments;
All other expenses 20% - Food, insurance, prescriptions, doctor & dentist bills, clothing & personal;
Investments & Savings 10% - Stocks, bonds, cash reserves, retirement, rental real estate, art, etc.
If your household brings home a net income of $3,000 a month:
Your rent, mortgage, insurance and utilities should not exceed $1,050/month. This is an item that might be hard to change, so if it’s higher, then you’ll have to figure out what other items you can cut back on. It also provides you with a goal to try to get to as you make future financing/rental decisions.
You shouldn’t be spending any more than $600/month on car payments, gas, maintenance, insurance and parking. Again, this is something that may be “fixed” for you at the moment because of existing car loans and your commute. But it’s a good point of reference for thinking about future auto purchases, etc. You might even consider giving up a vehicle and using a combination of public transportation for commuting and some kind of carshare program like Zipcar (NASDAQ: ZIP) rentals which include gas and insurance when you really need a car for something.
If you have debt, you want to be putting at least $450 per month toward those debt payments (if not more) and you definitely want to make sure that your minimum payments due are not more than $450/month. If they are, you’ve got a problem and you may want to get some help.
Everything else your family needs every month should not exceed $600/month. If you’re spending more than that, you need to figure out where to cut back. Your family needs to know this number. Tracking it on a white board through the month so that everyone can see how the family is spending against it will help keep them fiscally conservative. Each month that your spending comes in below this number means that the difference goes into the vacation fund. One chart showing how much you’ve spent and another showing how much went toward the vacation fund each month can be a very powerful visual for the family.
And last, but definitely not least, $300 a month (minimum) needs to go into savings or retirement. If you have a 401(k) available, that’s the easiest way to stash away that 10%. The tax benefits and employer matches will actually make it much more than that in the end.
Get the whole family involved in finding ways to save money or produce extra income. When the kids understand the payoff at the end, they’ll be much more supportive. If you’ve been the kind of parent who says, “go ahead and pick something out for yourself before we leave the store,” you might just start hearing responses like, “no thanks, Mom, I’d rather save it for Disneyworld!” (NYSE: DIS) You might even want to ask your kids to help you out and point out when they think mom or dad is about to spend money unwisely – kids LOVE to point out when mom or dad is about to make a mistake!
I really loved the idea this father had posted in getrichslowly.org about, rather than an allowance, giving his son parts of the family budget to control, McDonald's (NYSE: MCD) and video games, the parts that were important to the kid which taught him a great lesson about give and take and saving up for things he wanted.
Taking some of these steps will not only help your family achieve its financial goals, but will give your children valuable money management lessons to ensure that they have a healthy financial future.
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