Most of us have never thought of it that way, but running the finances of a family is just like running a small business. Money coming in is spent on expenses, and there should be something left over at the end of the month. In a business that’s profit but in a family, we call that Savings!! This is the extra money we should be setting aside until we have saved several months of Expenses as a Reserve Account to help with unexpected problems in the future.
Usually one of the family members is better at the mechanics of bill paying and clerical record keeping. Great. But the other spouse should not then become an uninvolved “abdicator”. Countless clients have turned to their spouse and said “How could this happen Honey? I put you in charge” . Shame on you abdicators!! You need to help Management make this all work. Both partners and sometimes the whole family need to be involved in the family budget. Even older children need to appreciate that Web Access, Netflix, pay per view movies, Cell phones (smart phones mean expensive phones), etc all cost money which is then not available for other potential purchases.
A frequent problem of people that do attempt to budget is that they plan on spending 100% of their earnings on a typical no problem month. So what happens when you get “unexpected” expenses like car repairs, medical co-pays, higher utility bills in a extra cold winter, home repairs like water heaters, …. What happens is we use credit, either existing credit cards or new credit we apply for to cover the expense.
So as painful as it may be, most of the personal financial managment courses teach that no more than 80% of your income should be budgeted for your typical expenses that occur over the course of a year. Yes you should average things like utilities, etc over the year to even out those ups and downs. Also, look at your budget from different perspectives. Do it as you project it should be (budget one) and then as it really is by going through the actual expenses over say the last three months and compare.
OK, so use our budget form to get started on figuring out that puzzle!