Managing Family Finances can be a little overwhelming! Find yourself wondering what to do, where to start, or how to wrap your mind around the “big picture?” This blog offers a practical approach to managing family finances in 3 steps.
These 3 Steps are a launch point; they’ll help you get a feel for the direction and will perhaps spark a few ideas for your annual goals as well. My friend, I wish you the best of luck and encourage you to keep developing Mêtis in your Money Matters.
Managing Family Finances: Key Elements
Table of Contents
- 1 Managing Family Finances: Key Elements
- 1.1 1. Contingency Plans (Insurance, Trusts, Emergency Funds) are a critical part of Managing Family Finances.
- 1.2 2. Managing Family Finances is Managing your Money (Budgets, Debts, and Financial Education).
- 1.3 3. Living the Dream while managing family finances (Retirement, College, and Goals)
- 1.4 Share this:
- 1.5 More related content, please!
I can say from personal experience: family finances can be daunting. There are many moving parts to keep in focus, each supporting the financial platform of the family. I think of pillars successfully supporting a building, and I’d like to suggest these 3 as financial pillars supporting your family.
1. Contingency Plans (Insurance, Trusts, Emergency Funds) are a critical part of Managing Family Finances.
First and foremost: it is important to have contingency plans in place. I’m not talking about breaking out a tin-foil hat. These are fundamentals that every family should have in place. I’ll be the first to say that talking about these topics and giving them serious thought can be a little uncomfortable. However, they are all worth the effort; they all support your family in case of an emergency situation.
Don’t leave your family in an even more difficult position. If something were to happen to you (God forbid), your family would be in a very difficult time. That could be made even worse if you don’t have an insurance plan there to support your family financially for a time after you’re gone. Personally, I recommend Term Life Insurance as you work towards being self-insured over time.
Right along with the same theme as Life Insurance, Estate Planning is an essential part of Managing Family Finances. Consider working with an attorney you can trust, identify an outline, and define what will support your family in the event of your untimely passing. My wife and established a Living Trust and defined trustees, etc. so that our children will be taken care of. Certainly not ‘easy’ to think about, but we find peace of mind knowing they will be financially and legally supported by this effort.
Setting up an Emergency Fund is the next item to tackle in managing family finances. This is a fund designed for emergencies only. (Don’t think of it as a savings account that you can borrow from here and there). My wife and I started with $1,000 and built-up from there. Many people have different thoughts on ‘how much’ an emergency fund should have. I think $1,000 is a healthy target, to begin with. Then, as you establish your budget you can think about the ‘next steps’ for your Emergency fund.
2. Managing Family Finances is Managing your Money (Budgets, Debts, and Financial Education).
Now that you’ve got some of the most important pieces addressed in the first financial pillar it is time to move to the management of money.
I start this financial pillar with Budgets. Emergency and contingency aside, I think this is the most important step. Without a proper budget, it is impossible to support your family finances with any consistent success. My wife and I like to use Mint to track our finances, and we review it together on a regular basis. This keeps our family-focused and on-track! I think working on a budget as a couple has been one of the best things for our marriage too.
Now that you have a functioning budget in place it is time to take a swing at debt. My opinion is that non-mortgage debt needs to be eliminated as quickly as possible. Some recommend paying off the smallest balance of debt first, while others recommend paying off the balance with the highest interest rate first. I can see the psychological benefit of seeing the debt visibly roll off with the first approach, but I personally abide by and recommend the second. I recommend paying the minimum on all debts, and then pouring extra into the balance with the highest interest rate first.
This is an on-going effort and one that everyone should keep front-and-center. My friend, I strongly encourage that you take the time and invest the effort to enhance your financial education. Doing the research and growing your knowledge will help you avoid costly mistakes in managing family finances. It also makes the victory you’ll experience even more savory after you’ve worked hard to accomplish your financial goals. Need a place to start? Here are a few book reviews I’ve done on some of my favorite finance books:
- The Only Investment Guide You’ll Ever Need
- The Psychology of Investing
- A Beginner’s Guide to the Stock Market
3. Living the Dream while managing family finances (Retirement, College, and Goals)
All the hard work leads you forward, onward, and upward. To me, living the dream is a combination of preparing for the future (i.e. delay consumption) and enjoying what you have today (consuming now). In a way, it is about the journey. Grabbing the proverbial ‘bull by the horns’ doesn’t have to restrict the quality of life either. Find joy today in what you are doing.
Saving for Retirement
This is the element of balance. Ideally, we’d all be able to save massive amounts of money in a well-diversified portfolio while also being able to live our current lives to the fullest extent financially. However, that is simply not a reality for most of us. I recommend targeting 10-15% of your annual income for retirement, and I believe this should include anything that your employer matches. For example: if your employer matches 100% of your 401(k) contributions up to 3% you should find that room in your budget and DO IT. In this example, your contribution is matched and the 3% is now 6% of your targeted minimum of 10%. A big chunk in one move! Check with your HR department to see what is available from your current employer.
Managing Family Finances For Your Children
A core part of family finances is our children. Most of our lives will revolve around what we do for them! Part of this is educating them on finances so they can make good choices in their life. Additionally, we try to help with savings for college as well via a 529 plan. Check with your state to see what plans are available!
Side-Gigs and Investments
As you continue to get better at managing your family finances you might also consider a side-gig! Do you have a skill or passion that you enjoy? Consider making it official and growing it into a business. (In my opinion, I believe the prudent path is making sure your other pillars are in-tact first).
Another type of side-gig can be investing! Whether trading or investing for the long-term this is a chance to put your financial education to work. I’m not advocating a ‘gambling’ approach to investing, and as a general rule, I think investing outside of retirement should only be made with money you can afford to lose. Need an idea on where to start? Consider Robinhood for stocks or Coinbase for digital currency like Bitcoin.
Living the Dream
This is all too easy to pass up. I recommend taking time to smell the roses, enjoy the crunch of the fall leaves and make memories along the way. We’re not guaranteed anything in life and celebrating what we have is healthy and rewarding. Don’t wait for the next vacation to reflect on the blessings in your life. I say this because I tend to forget this step myself. It is easy for me to drill in on the other points and get overwhelmed! If you’re like me in that regard, try to take small measurable progress each day toward your goals. Be patient, and take a deep breath! You CAN do it!
I hope this has been encouraging and sparked a few financial ideas in your approach to managing family finances! Best of luck to you and your family on your personal finance journey!
How long do you think someone should invest in life insurance? I ask because it significantly goes up once you’re 60 (I think)…but that’s still pretty early to retire nowadays and what happens if something horrible goes wrong? Curious what you recommend on that front.
Tim MBA, ALMI, ASRI says
Great question! I see this come up often in my research as well. A lot of family finance ‘depends’ on the situation. With that caveat in mind, I think an ideal situation would be to achieve a degree of self-insurance at around 65 so that one doesn’t have to pay such expensive premiums. Getting there is a challenge. I suggest buying term and investing (Dave Ramsey has some good stuff on that approach) a portion as well. If someone can do that then they’ll have insurance for the 20+ years of savings and get to the point where they no longer need to purchase insurance. In theory, they’ll have substantial savings on-hand for the unexpected and unfortunate should anything occur. As with anything related to insurance or financials I recommend consulting with your trusted financial advisor.
Thank you for this.
Tim MBA, ALMI, ASRI says
My pleasure! Best of luck on your personal financial journey.