Although financial planning might not make it to the top of your list of things that are important to the well-being of your family, it is nevertheless an integral part of being worry-free. Instead of fretting over the possibility of unemployment or losing sleep because you don’t have the money to send your kids to college you can face your finances head on and make a plan for the future of your family. For any financial plan to have a chance at success it must attempt to balance expenses against income while factoring in both short and long term goals. Take a look at a few of the factors mentioned below.
Quantify Your Family Expenses
The first step to realistic financial planning is to list your family’s expenses. It helps to categorize these expenses into logical groups that make it easier to identify possible room for cut backs or ways to eliminate expenses completely. Every family has mandatory expenses or those bills that must be paid. This might include mortgage or rent payments, utilities, loan payments, childcare costs or health insurance premiums. Discretionary expenses may take up a considerable portion of your spending budget but this is where you can find room to save if you do some serious soul searching, because these costs are not necessary. They may include eating out, entertainment, spending on designer clothing or even vacations.
Look at Your Income
When you have documented your expenses it is time to take a look at your income. If your family has more than one income earner all sources must be identified and included in the calculation of the total income figure. You may also have several different income sources such as interest income, dividends, tax refunds or bonus payments. All income flows must be included for the exercise to be meaningful. You may realize that you need to find additional sources of income if there are drastic fluctuations or if your expenses outstrip your income by a large amount.
Figure Out the Gap
If your expenses surpass your income this is where you try to narrow the gap either by increasing your income or cutting your expenses. There are a number of ways you can ways to spend less. Adopting a two-pronged approach is usually the best way to get results.
Prioritize Family Goals
Finally, if you want to balance your family expenses you must get specific about your goals and then take the time to prioritize them. Every member of the family may have something they want to achieve and each goal comes with a financial aspect. Figuring out what is most important and then what you can afford is the key to proper family financial planning.