Our families are busier now than ever before. Between work, school, homework, sports activities, after-school programs, social media, friends, and family affairs, we may not be having some necessary discussions. One of the most sensitive conversations families have, or avoid, is about money. Growing up in a culture where finances were not discussed for various reasons, lack of education being one, I did not learn about personal finance until college. Don’t make this same mistake and take a moment to have the conversation. Children get their values and understanding about most things in life at home. Believe it or not, parents are the biggest influence in their children’s lives, and that includes how you deal with money. So why aren’t we having this conversation? Perhaps you don’t feel equipped to handle your own finances and don’t want to approach the topic with your children, or with anyone else for that matter. Maybe you think it’s better not to say anything at all and you feel confident enough that they will learn what they need to know about money in school. The reality is schools aren’t doing enough to teach children about money.
Survey after survey show Americans don’t understand basic financial concepts. According to data from the 2012 Financial Industry Regulatory Authority (FINRA) Investor Education Foundation’s National Financial Capability Study, “millennials exhibit very low levels of financial literacy – only 24% can answer four or five questions correctly on a five-question financial literacy quiz.” It’s clear that many people find it challenging to managing their money but don’t leave this important life lesson to chance.
Here is a strategy to get the conversation started. Plan together. That’s right, create a family budget and get the children involved.
I know what you may be thinking; budgeting is too complicated. I don’t have the time. Budgeting is just not for me. Or, perhaps, you believe that you already have a handle on your money and don’t need a budget. But, do you? If you don’t budget do you ask yourself: “ Where does all of my money go?” Are you sick and tired of being sick and tired of being broke? Do you worry about money? If so, you are not alone. According to a Gallup poll only about 30% of Americans prepare a budget. A bankrate.com survey found that nearly 75% of Americans are living-paycheck-to-paycheck with little to no emergency savings. And what’s worse? More than half of Americans are not putting aside enough money to maintain their current standard of living in retirement. Okay, I know none of this sounds good. That’s why it is really important to have a plan for your money. Good management of a family’s finances, and the avoidance of financial difficulties, usually involves preparing a family budget. A budget is a tool you can use to determine where all of your money is going. It is simply your income (what you bring in) minus your expenses (what you give out) and what’s left over is your discretionary income – the amount you have after essentials such as housing and food have been paid for. The key to budgeting is to start now and create a budget to fit your family’s lifestyle.
While budgeting may not be your strong point, it is vital to your, and your family’s, financial life. A budget will give you financial direction, help you identify where all of your money is going, help you prevent a crisis, plan for major life events and allow you to save! Many people learn by making mistakes. Let’s set a different path for our children and teach them what they need to know before they make detrimental mistakes with their money. It’s never too early to speak with your children about money. Turn day-to-day activities into learning experiences. A trip to the bank can teach them the importance of saving. Let your children help you create a grocery list before you go shopping so you don’t go over-budget. If they are old enough to have a part-time job, teach them the importance of giving back by supporting their local church or charity.
If you follow these six steps and keep it simple you can develop the discipline to stop spending unnecessarily and start planning for a better financial future for you and your family.
- Step 1: Know Your Income
This includes wages from your full-time job, part-time job, social security, alimony, child support, and maybe money from a side business.
- Step 2: List your fixed and variable expenses
Examples of fixed expenses include mortgage or rent payments, tithing, car payments, and insurance costs. Examples of variable expenses include food, clothing, utilities, cable, and miscellaneous costs.
- Step 3: Set goals
Budgeting involves tough choices, but having a goal, or several goals, will make budgeting a little less painful.
- Step 4: Prioritize
Prioritize what is most important to handle first.
- Step 5: Track your spending
It’s important to track your spending because, after all, you want to know where your money is going.
- Step 6: Review your budget and make adjustments where necessary.
Yes, your budget can and should change as your life and family situations change.
There are many things that we should include in our budget. Create a budget that works for you and your family and allows for not only the essentials but also an emergency fund, retirement savings, college savings for your children, and of course, funds for fun stuff.
Below is an example of how your budget should break down, and don’t worry if you don’t exactly fit into each category on your first try. Budgets take time to develop and you should begin to see a pattern after about three months. So, gather the family, set some goals and be on your way to a better financial future.