Family Finances: Budgeting like a pro
Does managing your family finances feel waaaay too hard? We chat to Cameron Klupfel from Evolve Accounting & Advice to get his expert advice on setting up a family budget AND sticking to it!
Why is it important to have a budget?
A budget is the cornerstone of getting the family finances on track. It ensures that your precious income is being spent in the most appropriate places and not being wasted. It also sets out a visible path to follow, providing financial discipline for everyone involved.
How do you set up a budget?
The easiest way to set up a family budget is to break it into achievable chunks or ‘pots’.
First, identify your fixed costs. These are the everyday essentials you need to live such as rent, bills and groceries.
Then make a list of discretionary costs. These are the non-essentials such as eating out, coffee, clothes and entertainment.
Thirdly, have an amount for savings and rainy day needs. This pot covers those unexpected bills such as repairs, emergency funds and saving for the future.
What are your tips for ensuring you stick to your budget?
Sit down with your partner and be honest about your objectives and what you are trying to achieve – is it for saving, paying off debt, accomodating school fees?
Be realistic. Don’t say you won’t eat out when you will because regular budget blowouts will just deter you from continuing.
Once you have a budget in place, you both need to agree to it to ensure everyone is on the same page and happy to commit.
Review it regularly to see where you could cut costs. If you are having budget blowouts, look at where the extra spend is going and adjust accordingly.
Be proud of the savings you grow – seeing that pot accumulate is always a great reminder to stay on track.
Seek advice. The experts can guide you through the budget process and help you set goals. So, don’t go it alone, particularly if you are looking to save or invest. You will have more success with the right advice and foundation.
When should you set a budget up?
As soon as you can! The sooner you put these practices in place, the sooner it becomes habit. We don’t learn these skills at school, so it’s important to establish them as part of life as soon as you can.
Starting early also means the savings are compounded, ensuring you will get further ahead.
What about saving for the future?
Though it’s hard to imagine retirement when you are in the thick of nappies and school runs, having enough to retire on is a critical part of your life planning.
To ensure you will be set up when it’s time to slow down, decide on your retirement goal – i.e. how much you need to retire – and work back from there.
If you are finding it hard to save, commit to saving a certain amount by setting up a direct debit into a separate account (one that you can’t instantly touch!) that debits at the start of each pay cycle. Tap & Go is terrible for frittering away money, so put the savings somewhere that is invisible and you’ll forget it’s there.
How do we keep it consistent across the whole family?
Family meetings are a great way of setting budgets across the household. This way you can clarify what every family member wants and work that into your budgeting. It also sets in motion educating the kids about money.
Give the kids extra jobs to do around the house beyond their everyday chores that allow them to earn money.
Help them to set up their own three ‘pots’.
The first is for spending right now – after all, they’ve worked for their money so it’s nice for them to go and buy something small to feel that reward.
The second is for saving for long-term goals. Teach them to go without, see the money accumulate and experience the reward of gradually working towards a long-term goal.
The third is for giving. This really helps them to understand how society works and that giving is a part of what we do. It might be a Christmas present for the Wishing Tree, sponsoring an animal, or planting a tree.
Use physical money with the kids. This way they really understand what it means to pay for things (handing the money over), saving (seeing the money accumulate), and donating (feeling the significance of giving and the empathy for those receiving).
Any financial parenting tips?
It’s really important that you keep it consistent. If the kids do the jobs each week, pay them every week. If it loses consistency, it loses impact.
Model the behaviour you expect. You can’t expect the kids to do something if you don’t do it yourself!
Also, explain consumer credit early. Cards seem like an endless money tree to kids, so it’s important that they understand how credit cards work and the financial impact they carry.
This way, once they are out on their own, they understand the downsides of credit and the value of delayed gratification on items they really want, if it means avoiding the financial hardship of debt.
These basic things aren’t taught at school, so educating your kids about finances from an early age is critical.
Family finances – the essentials
- Put a budget in place as soon as you can
- Be honest about your objectives and realistic about your budget
- Put savings away at the start of each pay cycle
- Hold regular family meetings to set budgets across the household
- Review your budget regularly
- Be proud of the savings you grow
- Teach kids how to budget and save Seek advice if you need it
FOR MORE INFORMATION and tips, visit: Evolve Accounting & Advice 07 5319 0010 www.evolveaa.com.au