Whether we like it or not, we all need money to survive. It’s the solution for many things—food, shelter, education, clothing—the list goes on. It even supports leisurely pursuits like travelling and a wide breadth of hobbies.
Parents have it harder than most, however, as they also have to take their child’s needs into account. When a parent finds themselves in a financial crunch, providing a comfortable life for their family would be challenging. “Challenging” may be an understatement, even.
One way to mitigate the possibility of financial ruin is by being extra mindful of your financial cash flow, both the money coming in and out. This means closely gripping your finances and allocating them in the right categories for future financial security.
In reality, anyone can plan their finances regardless of their life circumstances. However, there are some distinct steps you have to consider if your financial plan covers multiple dependents as well.
From goal setting to budget planning, here are some effective ways you can start planning for your family’s financial future.
Educate Your Family About Finances
It’s important to educate your kids about the value of money if you want to secure your family’s financial future.
While you don’t want to deprive them completely of their wants, you want them to view money as a finite resource. It’s not something that simply lands on their lap whenever they want it to—it’s something that’s earned. And, as an extension, respected.
In doing this, you’re instilling a sense of responsibility to your children regarding their spending habits. This, in turn, can help you collectively achieve your financial goals faster.
It’s also important to highlight how money plays a role in achieving familial goals, and how you plan to use money to uplift your family’s specific set of circumstances.
For instance, buying a family car or a house entails quite a large chunk of money. It’s an objective that you should inform your family about so that they can adjust their spending and financial plans accordingly.
Of course, it’s important to keep things at an age-appropriate level. For children, you can teach them about the basics of saving by using a piggy bank. You can also distinguish needs from wants.
By doing this, you’re setting a good foundation for your family to be smart with money, which makes it easier for you to achieve your family’s financial goals.
Create a Family Budget Plan
A family budget plan is incredibly useful for keeping track of your home’s financial inflows and outflows. To start, look at your various income streams and total the amount. This should include your and your partner’s monthly income, passive income streams, and investments you’ve made.
Then do the same with your monthly expenses, both fixed and variable amounts. This includes your rent, grocery, phone, Internet, electricity, education, and other recurring bills. Also, have a budget for your children’s needs and miscellaneous purchases you may make throughout the month.
A fundamental budget plan is one wherein your income exceeds your expenses. Whatever the difference is can be used for savings and investments. Ideally, you’d set aside a respectable chunk in this allocated category — at least 20% of your monthly earnings would suffice. But if you can afford to save and invest a bigger fraction of your earnings, even better!
Furthermore, make sure that your partner is also in agreement with your cost allocation plan. This way, you can promote both a harmonious and financially-forward relationship within your family.
Build an Emergency Fund
Let’s face it: emergencies can and do happen. Moreover, the risk of emergencies happening in your household increases in proportion to the number of people residing there.
When an emergency does occur, like a vehicular accident or a job loss, it’s important to have a store of cash on hand to immediately address the concern.
An emergency fund refers to a financial safety net that people can use in case of sudden mishaps. It’s usually stored in a bank savings account that offers a varying level of monthly interest rates.
Normally, people set aside three to six months’ worth of their monthly income as their emergency fund—however, the actual value can vary depending on one’s own propensity towards risk.
It takes time to build an emergency fund, especially considering the dynamic nature of having a family. This calculator can help you break down when exactly you can reach your savings goals so that you can have a clearer plan of action when tackling your savings strategy.
Build a Fund For Life Milestones
Each family member has their own individual pursuits. In many of these life milestones, you as a parent or spouse play an essential role in helping them get there with some financial injection.
For instance, your children need to have an adequate education—and many schools and universities cost quite a bit of money. You should therefore allocate a portion of your income to fund these pursuits for the betterment of your child’s future.
Project tuition fees throughout the years and save an adequate amount. Besides that, you should also look after yourself and your spouse’s future.
One way to do that is by making the most of your super fund (if you’re based in Australia) or pension by making voluntary contributions every so often. If you have excess cash just sitting around, consider putting it into money-generating vehicles like time deposits and bonds.
Once your family has hit these milestones successfully, adapt your budgeting plan accordingly. Constantly adjust your budget plan so that you can prepare for future milestones and not stray from your objectives.
Get Insurance For Your Family
Another way to protect family finances is by getting insurance. Unforeseen circumstances can happen, potentially costing you thousands of dollars—in other words, money that you may not immediately want to part ways with.
Getting insurance is the best way to protect you and your family against high costs, whether it’s related to one’s medical health, home costs, pet, or vehicle. A term policy is the minimum standard insurance policy that each member of the family should be covered by.
Having insurance plans may seem like unnecessary monthly costs, but they can potentially save you hundreds if not thousands of dollars when the need arises. As such, do try to prioritise signing an insurance plan with your family with a trusted insurance agent.
Pay Off Debt Strategically
It’s not enough to bring your debt obligations to zero, that’s so much easier said than done, after all. Instead, you want to sit down and come up with a strategy for paying your debt with the least financial drain possible.
There are multiple ways you can achieve this. One method you can employ is the debt avalanche method, which is a method wherein you tackle debts with higher interest first. This helps you lessen the impact of your interest dues over time.
Another method is the debt snowball method. This is when you pay off smaller debts first, gaining momentum when each debt is cleared. This has a more motivational benefit rather than a quantifiable one, but it can help make debt clearance less overwhelming.
Alternatively (or for future reference), consider consolidating all your debt into one loan. This way, it’s easier to track and there’ll be fewer variables to work with when the time comes for debt repayment.
By paying your debt with no delays, you’re helping your future self have better control over your finances while simultaneously laying the foundation for you to take on bigger loans due to accumulating an improved credit score.
This, in turn, can make it easier for your family to enjoy a comfortable life in your household.