The most important action you can take with your family finances is to accurately track your expenditures. When you know exactly where your money goes, you can redirect your spending patterns to fit your goals. This is the road to financial success.
The first step is to list your spending “categories.” Spending categories very much depend on your individual family. Categories must be broad enough to help you view various segments of your spending; yet they should not be too many categories or you will have created a bureaucratic challenge.
Here are some suggested categories (subcategories). Shelter (mortgage/rent, maintenance and upkeep, utilities, phone, internet); food (groceries, eating out, coffee); clothes (his, hers, the kids); transportation (car payment, gas, licensing, insurance, maintenance); personal care; medical (co pay, RX, dental); gifts and donations; and miscellaneous. Wal-Mart, for example, is not a category because you can buy items which fit in a wide variety of categories. Interest payments are not a category because you should be paying your credit card off at the end of each month. Write down your categories on a page or two of paper with plenty of room between items or accomplish the same setup using your computer, iPad, or iPhone.
Next step is for each family member to keep a record of all the money spent each day. This can be accomplished on a blank notepad, the use of receipts or check stubs, or with the help of various apps such as “Budget Envelopes,” “Budgeting Tool,” or “Budgets.” Periodically (daily, weekly, twice a month) transfer the list of expenditures to the proper place on your categories sheet. Total each category at the end of the month and then total all categories and subtract from your total net income. The figure should be a positive number. In other words, you should have spent less than you made.
A good way to pinpoint areas in which expenditures might be reduced is to label each expense N = needs; W = wants; or DH (dangerous to your health – tobacco products, excess liquor, sugary drinks, processed foods with unpronounceable ingredients).
Once a month all family members should review the expenses asking themselves, “Is this where we want our money to go?” Also understand that the family can control all expenses. Yes, even the house or car payment – you could always downsize, upsize, or refinance. Yes, also on other needs like utilities (turn off the lights) or clothes (you “need” clothes for work and play, but you don’t need 32 pairs of shoes). Don’t look at “wants” as a bad thing – once you have a balanced budget, have cash set aside for an emergency fund, for retirement, and for other long-term goals, your family can spend as much as it can afford on things listed as “wants.”
After the family reviews three months of expenses, the next step is to determine a budget amount, a spending limit, for each category. Adopt a family policy whereby you stop spending at the point in the month when you have spent the entire budgeted amount. You must defer purchases in that category until next month after that category is refilled.
Modify this guidance to fit your family situation and your family finances and your life will improve.