Managing your family finances:
It’s your business
By Sterling Kozlowski
It keeps a roof over your head, food on the table, and lights on in your home.
It can help your kids go to college, you save for retirement, and can also be used for a much-needed vacation. Money. It’s so important to a family’s life and yet it is often treated like an afterthought.
American families don’t manage their money well. In fact, in a 2010 Zogby survey of 2,068 adults, nearly 60 percent of all respondents said they do not follow a monthly budget. More than 10 percent of respondents said they were not knowledgeable or had below average knowledge of personal finance. Furthermore, a 2010 survey by the Employee Benefit Research Institute revealed that 43 percent of American workers have less than $10,000 in savings.
So how can you improve your money-managing skills? Give your money the respect it deserves and treat family finances like a business.
The plan
All good businesses start with a business plan, which outlines the vision for the business concept and sets goals. This is a logical first step for the “family business.” Sit down with your family and write out your plan.
First, define your goals as a family. Where do you want to be in 5, 10, 20 … even 30 years? So often we neglect to see the big picture, but forecasting is crucial to a business. Will you be facing college or retirement? Would you like to plan a big vacation or buy a house? Consider all your goals and include them in your plan.
Once you have listed your goals, prioritize them. Discuss how to achieve them with all of the members of your family. In the business world, this is the “buy-in” phase, because for any initiative to be successful, all interested parties must believe in it, be motivated to act on it and be committed to achieving a positive outcome.
This plan will give you a foundation and a starting point for successfully managing your family finances and can act as a motivational tool for your family. Once you know where you want to be, you can figure out how to get there.
Budgeting for success
Some people cringe at the word budget and the idea of having to account for practically every cent; however, budgets are the foundation of fiscal responsibility. They are the financial blueprints for households looking to better manage their money. To plan a budget, begin with these general steps:
1. Track all of your expenses, including credit cards, utilities, entertainment expenses, school costs, groceries, etc.
2. Evaluate your necessary and miscellaneous expenses. Are there things on your list you can live without? It’s important to be willing to make sacrifices now in order to get what you want later.
3. Incorporate flexibility into your plan. Like a child who rebels against too many rules, you could end up rebelling against your too-strict budget and sabotaging yourself.
4. Evaluate your budget every few months for effectiveness.
You will undoubtedly have unplanned expenses that arise — the septic tank needs pumping, your car dies, an ice dam forms on your roof and causes some interior water damage, etc. Save for emergencies in advance. If you find things like this happening often and you can’t account for them financially, then it is probably time to review your budget and make some tweaks.
Remember, the budget is a tool to help your family achieve important life goals-short-term and long-term-that you establish together. Make it work for you, make everyone accountable and create incentives by being flexible and allowing for some fun.
Saving strategies
It is also important to contribute to savings every month. Whether it is a basic savings account, 401K or one of many other investment types, contributing to savings is a necessity for the family business. If you have a small budget right now, then start small. As your budgeting begins to improve your finances, you will be able to contribute more.
Your family’s financial health is an extremely important part of your responsibilities. Make sure your family works together as a team to keep it in check. Find ways you can have family discussions about spending, pay bills together, plan the budget together, and save together.
Kids can get involved, too. Being a part of the conversation helps them understand priorities. More important, children learn from observing their parents and caregivers.
Approaching finances in a positive, whole-family way will undoubtedly start your children down the right path to successful money management. And, it will help you meet your long-term goals with confidence and ease.
Sterling Kozlowski is the president of the Maine District of Key Bank. He can be reached at 207-874-7298 or by e-mail at sterling.kozlowski@key.com.
