Judie kept the checkbook and paid the bills, while her husband kept track of everything else having to do with their household finances. Judie liked the arrangement. She needed it that way. She needed to be able to budget and buy the groceries, the children’s clothing, and other household goods. But Judie didn’t want the worry of which direction their finances were headed, how long their mortgage would take to pay off, and how their retirement savings and investments were doing. Every now and then, Judie would sit down with her husband to look at the spreadsheets he kept for their big financial picture, from which Judie could see that they were indeed headed in the right direction.
Finances
A good family life depends on responsible management of household finances. Families have a lot of needs. Many of those needs, like housing, food, clothing, medical care, and transportation, depend on family income. But a family needs more than income to ensure that it has necessary and helpful goods and services. Some families have lots of income, but poor financial management leaves them in financial insecurity. Indeed, the amount of income isn’t the primary question when the subject is financial security. The determinant of financial stability is instead primarily the skill with which spouses manage family finances. Loss of income can lead to financial crises. But just as often, financial crises develop from failures to manage income and expenses responsibly, with an eye toward risk. Sound financial management plans for emergencies like job loss. Assign your family’s financial management to the spouse who has the skills, or divide financial tasks to draw on the strengths of both spouses. Above all, seek and support responsible financial strategies and decisions.
Hazards
If you’re not convinced of the need for skilled household financial management, consider the hazards of poor financial management. Poor financial management can heap loads of stress on spouses, while also concerning or even alarming children. Poor financial management can lead to unpaid bills, credit cards maxed out, and utility shut offs. Poor finances can lead to collections calls, process servers knocking at the door, and wage garnishments. Poor finances can also lead to vehicle repossessions, mortgage default, and eviction notices. Poor credit can also mean you can’t buy a house or even find an apartment owner willing to rent. Poor finances can mean your children wearing old and ill-fitting clothing and worn-out shoes. Poor finances can even mean hungry and sick children. Sound household finances mean a lot. Keep monitoring your household finances, and keep learning how to manage them better.
Goals
When you and your spouse agree on household financial goals, you set the tone for household financial success. If you and your spouse don’t know the goals that either of you have in mind, you may find yourselves in conflict without even realizing the source. You may both be acting rationally but attempting to achieve different or even conflicting financial goals. Financial goals can relate directly to finances, like a goal of reducing debt, building an emergency fund, and saving for retirement. Financial goals can also relate to the material, psychological, or spiritual things that achieving direct financial goals can serve, like owning or improving a family home, sending children through college, relieving anxiety and stress, and being generous with charitable giving. When you and your spouse agree on financial goals, agreeing on the means, methods, practices, and disciplines to achieve those goals can be easier.
Conflict
Family conflict over finances can undermine family peace, confidence, and relationships. When spouses disagree about money, in particular, the whole family can suffer. Money disagreements are a primary cause of marital conflict and even separation and divorce. As just indicated, agreeing on financial goals can reduce marital conflict. But the conflict may have deeper roots in a homemaking spouse’s insecurity, bread-winning spouse’s pride, financial secrecy and hoarding sowing marital distrust, and secret or excessive expenditures as compensating mechanisms. Try to discern the root of your marital financial conflicts. Get professional help not just in the form of financial advisors but pastors, psychologists, and marital counselors who can expose the root of conflicts and help with the healing process. Beware conflicts over household finances. They’re often less about money than about deeper issues.
Budget
Households must have a budget. A budget projects monthly expenses against available household income. Without a budget, you won’t know how much you can spend. Without a budget, you won’t know whether you are gaining or losing and building or destroying your family’s finances. Budgets are best when written down. If you won’t write down your anticipated monthly expenses based on your family’s track record of expenditures, then at least have a budget clearly in your head. Keep adjusting your budget as you see expenses change. And keep analyzing your budget for wasteful or excessive expenditures. Simple items like eating out at a restaurant or renting online videos can seem harmless enough. But discretionary and recreational expenditures can quickly add up. Work closely, collaboratively, and supportively with your spouse to stay on budget. Your household budget is the bedrock of your family finances. See more information and illustrations on budgeting in the guide Help with Your Money.
Emergency
Don’t just balance your family budget every month. Instead, trim it so that your family is saving money every month. Families have both short-term and long-term expenses, or if you prefer, big-ticket and little-ticket items. The big expenses can include home maintenance, vacation trips, college tuition, and vehicle purchases. Your monthly budget needs to account not just for the weekly and monthly expenses but also for the big-ticket items. Keep setting aside money to fund the big-ticket items without borrowing. Also, build an emergency fund for big-ticket items you hadn’t planned to pay, like uninsured medical bills and unexpected vehicle or home repairs. Indeed, build your family’s emergency fund to be able to pay for three to six months of household expenses without income, in case of job disability or layoff. Prepare your family finances for rainy days, and your family may sail right through those rainy days without suffering.
Balance
To truly manage your family’s finances, though, you need more than a sound budget. You should also have a balance sheet listing all your family’s assets against all your family’s debts. The purpose of a balance sheet is to show where your family stands overall and what direction your family’s finances are heading. Your family home and vehicles may make you feel rich. But if your family home and vehicles are heavily financed, and you also have educational and credit-card debt, then your family may have a negative net worth, meaning more debt than assets. If you track your family’s balance sheet quarter to quarter and year to year, you may find that your family is digging a deeper financial hole every year, even if it looks like your family is gaining financially from all the assets it enjoys. Manage your family’s finances to increase net worth, not to increase assets while increasing debt even more. Debt drags your family down, especially when not financing appreciating assets. Positive net worth, especially appreciating assets and investments, build your family up. Get your family from negative to positive net worth as quickly as you reasonably can, for the best long-term financial future. Make the time value of money work for your family, not against your family. See more information and illustrations on balance sheets in the guide Help with Your Money.
Strategies
You can improve your family’s finances, and by doing so improve your family life, by following financial strategies. The advice just given to move quickly from negative to positive net worth is an example of a financial strategy. Strategies involve implementing principles or approaches that generally work for your best. Budgeting is a strategy, just as monitoring the trend in your net worth is a strategy. Other financial strategies already alluded to or implied above include reducing debt and other financial risks, covering financial risks with savings or insurance, building capital funds for home or vehicle purchases and major replacements or repairs, and investing in appreciating assets for the long term. Learn financial strategies, and deploy them for your family’s best finances.
Tools
Financial tools can also help your family improve its finances and, with financial improvements, your family life. A budget is one financial tool, while a balance sheet is another financial tool. Budgets and balance sheets written out on paper or that you create on your own in electronic or paper spreadsheets can be fully satisfactory tools. Yet online applications, some of them free, offer ready-made budgeting and balance-sheet tools. Those applications or other readily available and free online resources can also have helpful comparison and analysis features. By using those tools, you may for instance find that your family’s monthly housing or food expenses substantially exceed household averages in your area, suggesting that you ought to consider adjusting those expenses. Benchmarking of that type is another financial strategy. You may find other helpful benchmarking data on your family’s utility costs, transportation costs, maintenance and repair costs, savings rate, assets-to-debt ratio, and other financial measures. Find the right tools to help your family manage its household finances.
Taxes
Taxes are generally a necessary part of a family’s financial management. Your family may have to pay personal and business income taxes, FICA employment taxes, capital gains taxes on interest, dividends, and sale of investments, real property taxes, special assessments, and sales taxes. Be sure to use net household income rather than pre-tax income when creating and maintaining your family’s monthly budget, or figure taxes in on the expense side of your budget. Allocate into your monthly expense budget a proportional monthly expense for quarterly self-employment taxes, semi-annual real property taxes, or any similar annual, semi-annual, or quarterly taxes, so that you have the money available to pay those taxes when due. Do not forgo tax payments and ignore filing requirements. The tax authorities have greater powers to enforce tax obligations than ordinary creditors have. Don’t place your family at unnecessary risk of a tax levy.
Investing
The earlier that you and your spouse can begin to save and invest for retirement, the more assuredly you and your spouse will have adequate retirement funds. You and your spouse may also save and invest to buy a home, start a business, or fund your children’s college. When saving, it generally makes financial sense to take advantage of tax-favored accounts such as a 401(k), 403(b), IRA, or Roth IRA for retirement and a 529 Plan or education savings account (ESA or Coverdell Plan) for education. Consult with a professional advisor offering assistance with those accounts. When investing, diversifying to reduce risk is a common and prudent strategy. Market index funds, including stock funds and bond funds in appropriate proportions or in a combined stock/bond fund, are a common way of diversifying investments. Reducing investment load costs for long-term investments is another common and prudent strategy. Prefer investments where your family is not paying a manager a significant annual percentage fee, reducing your investment growth. Wise investing can help your family achieve its big financial goals. See additional recommendations on investing in the guide Help with Your Money.
Tithing
Managing your family finances can be an interesting and rewarding activity. It can also be inappropriately consuming, interfering with rather than contributing to a good family life. Don’t let accumulating money and building a high net worth become your idol, to the detriment of your family’s welfare and your moral character. Greed is never having enough and constantly taking more as a consequence. Generosity is greed’s cure. Tithing to your church is a powerful way to release you and your family from greed’s grip while pointing your family’s finances in the right direction. To tithe is to devote the first of your earnings, typically a tenth, to the one who enables them. To tithe is to voluntarily reduce your income specifically to demonstrate that income is of a lower order than the highest ideal. Tithing not only honors the highest, which is its greatest point. Tithing also helps you order everything else in your finances, particularly helping you distinguish between deceptive wants and real needs. You may even find, as scripture assures and millions discover, that you will begin not only to achieve but to far surpass your financial goals without worry, once you begin to tithe. Keep your family’s finances in the proper order, from top to bottom.
Reflection
On a scale of one to ten, how well are you and your spouse managing your family’s finances? What actions could you take to improve your management? What is your biggest current financial issue? What are you and your spouse doing to address that issue? Do you have a monthly household budget? Have you written it down and tracked it month to month to see how it is changing? What is the amount of savings your family has in its emergency fund or funds otherwise available to spend in the event of income loss? How long will those funds last to cover your family’s monthly expenses? Do you have a balance sheet for your family’s assets and debts? In what direction is your family’s net worth trending and at what rate? Where will your family net worth be in five years and ten years along the trend line that your family is currently headed? Is your family paying all tax obligations on time? Are you and your spouse saving and investing for retirement or other big-ticket items? Are your investments taking advantage of tax-favored accounts? Are your investments appropriately diversified? Are they growing at a reasonable rate of return?
Key Points
Sound financial management can be key to a good family life.
The hazards of poor family financial management can be severe.
You and your spouse agreeing on goals greatly aids management.
Conflict over family finances can have roots in deeper insecurities.
A monthly budget is your family’s bedrock financial tool.
Building an emergency fund helps protect against family insecurity.
Use a balance sheet to monitor family debt against assets.
Building net worth and other financial strategies aid family finances.
A budget, balance sheet, and other financial tools improve finances.
Budget to pay all family tax obligations timely, to avoid enforcement.
Follow prudent investment principles to protect and grow investments.