Family Budgeting — Should You Run Your Family like a Business?

If a business owner told you that they run their business without a budget, you’d probably have doubts about the longevity of that business.

How do they track expenses and income, and plan for unforeseen events? You might even think they were incompetent, or lazy. In any case, it’s a safe bet that we can all agree: running a business without a budget is a very bad idea.

A huge number of families run their households with no budget. Now, we know a family and business are two completely different ball games. However, financially running your family “like a business”, has its merits. Not convinced? We reckon we’ll change your mind by the end of this article.

The family unit as a “mini business”.

In a sense, your family is kind of like a mini business. You have regular expenses, you have income, you have emergencies and unplanned events. You probably have savings, or want to have some, and maybe want to invest as well so you can set your family unit up for success.

Here comes the pep talk...

Money is a tool that enables you to reach many of your goals in life — travel, homeownership, personal spending, cruisy retirement, and other financial freedoms. The reality is, until you know where your money goes, it’s impossible to make informed decisions about how to use it effectively.

A budget shows you exactly where your money goes and provides a clear plan that lets you save for the things that are important to you. And that’s exciting! Whatever you decide you want to save for and achieve, you can — with the right financial focus, budget, and discipline.

The biggest roadblocks to budgeting.

• It’s overwhelming to think about and plan, or families don’t know where to start.
• A budget takes time to establish.
• A budget calls for new habits and financial discipline.
• Fears around limited financial freedoms.
• Don’t want to know the realities of how bad the financial situation is (ignorance is bliss!).
• Have tried it before and it didn’t stick or was too hard.

The good news is, the pros outweigh the cons.

• Clarity on your existing financial situation (even if it’s not what you were hoping for or expecting).
• Gives fiscal direction and helps you stay (or get back) on track.
• Comfort in knowing when your money is coming in and when it’s going out.
• Save for things you want.
• Build a “financial cushion” for emergencies (healthcare, pet care, car problems, last-minute flights).

Three tips for an effective household budget.

So, just like running a business, creating an effective household budget is essential for managing your finances and achieving your financial goals. Here are three tips to help you create and maintain an effective household budget.

1. Track income and expenses.

Start by tracking all sources of income, including your salary, rental income, dividends, and any other sources of money coming into your household. A clear understanding of how much money you have available to work with is essential.

Next, track your expenses meticulously. Categorise your expenses into fixed (e.g., rent or mortgage, utilities, insurance) and variable (e.g., groceries, dining out, entertainment) categories.

You can track day-to-day expenses by entering them into a spreadsheet, or better yet, with a purpose-built tool such as Pocketsmith that automatically pulls from bank feeds to save you a lot of manual data entry.

2. Set clear goals and prioritise them.

Determine your financial goals, both short-term and long-term. Examples of short-term goals might include paying off credit card debt or saving for a vacation, while long-term goals could be buying a home, saving for retirement, or funding your child's education.

Prioritise your goals and allocate your income accordingly and realistically. Depending on your income, you might be able to save for multiple goals at once, or you might prefer to save for one thing at a time to reach your goal faster.

Either way, ensure that you are also setting aside money for essentials like housing, utilities, and debt repayment.

3. Create and stick to a realistic budget.

Based on your income, expenses, and goals, create a detailed budget that allocates your money each month. Be sure to include allocations for savings and emergencies.

Your budget should be realistic and sustainable. It should cover your essentials, pay down debt, save for your goals, and still have some space to spend for enjoyment.

Review and adjust your budget regularly. Life circumstances change, and it's important to adapt your budget accordingly. If you find that you're consistently overspending in certain areas, consider making adjustments to ensure you stay on track.

Consult a financial advisor.

Remember that budgeting is an ongoing process, and you probably won’t get it right the first time. That’s normal and okay! If you need more advice and accountability, we highly suggest engaging a financial advisor. These guys really know budgeting and are passionate about helping you succeed.

Please don't hesitate to contact us, and we can connect you with an exceptional financial advisor from our inner circle.