Wirral Mums Guide
Family Finance From Budgets To Savings
INTRODUCTION When you’re a family there’s a lot at stake. You not only have your own finances to manage, but your partner and your children are relying on you too. It’s easy to get off track. In fact, with today’s economy and financial strains, debt and financial upheaval seem to be the norm. It’s not a great way to live. Financial struggles are stressful. They affect your mental health, physical health, and even your family relationships. Financial freedom, on the other hand, is empowering. It removes the burden of debt and stress. Financial freedom doesn’t mean having millions in the bank and never worrying about money. What it does mean is having control of your money and being able to manage any surprises that come your way. Strong family finances… •
Help you get your money goals back on track
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Help you start your family with a plan
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Help you feel in control of your money and your future
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Help you stay out of debt
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Help you stay happily married - more married couples report fighting over money than anything else
The Goal of This Wirral Mums Guide The goal of this Wirral Mums Guide is to help you create a strong family financial plan. You’ll learn about the dreaded B-word, Budget, and you’ll learn to love it. You’ll learn how to set financial goals and create a plan to achieve them. In this guide you’ll discover… •
What a budget is and how to use it to your advantage.
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How to set financial goals.
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How to prioritize your financial goals and save for what’s most important to you.
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When you should pay off credit card debt and how much.
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The three different savings accounts you must have.
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Tools to help you discover how much you need to save for retirement.
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The three-step process to making your budget work.
And much more… Before we move forward, it’s important to understand what the term “Family Finances” means in the context of this report.
What Does “Family Finances” Mean? Family finances means… •
Knowing what you have coming in - Income
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Knowing what you have going out - Expenses
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Protecting yourself and your family - Insurance
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Planning for the future – Retirement and college
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Saving for the big purchases - Cars, houses and holidays
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Being prepared for life’s little surprises - The unexpected
Ready? Let’s get started!
CHAPTER ONE: THE B-WORD - BUDGET Budgeting has a bad rap. Many people are under the impression that budgeting is difficult, restrictive, and not worth their time. That’s just not true. A budget can be your best friend, at least when it comes to money. Let’s first talk about what a budget is and what it isn’t.
What Is a Budget? In simple terms, a budget is a tool you create and use to track your financial goals. These goals include: •
Paying your bills on time
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Saving for retirement
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Saving for college
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Saving for holidays and large purchases
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Paying off debt
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Saving for emergencies
A budget can help you, at a glance, know how much money you have to work with and how to allocate your money so that you make the best spending, saving, and investing decisions for you and your family. Your budget will also inspire you to save more and help you find creative ways to reduce spending. A budget is not… •
Set in stone – it’s a flexible tool that changes and grows as your needs, goals, and circumstances change and grow.
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Something someone else creates for you – it’s your money. Your budget must be personal and something that is easy for you to use.
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A “set it and forget it” tool – your budget is something that you’ll access on a monthly basis, at a minimum. You may assess your budget on a weekly or even daily basis to make sure you’re on track.
Creating Your Family Budget You’ve likely seen many budgeting worksheets. These worksheets can be helpful because they serve as a guide to help you create your own budget. However, before you download a printable worksheet, consider what type of tool you’ll be more likely to use on a regular basis. If you’re not a paper and pen kind of person, then consider a budgeting software program or application for your tablet or smartphone. There are many good programs to choose from. On your computer you can download “fill in the blank” type budgeting templates. You can also simply open a spreadsheet program and create your budget yourself. So the first step to creating your family budget is to decide which method will work best for you. Remember, you’ll be looking at your budget on a regular basis so it has to be easy to access and use.
Compiling the Data Once you’ve chosen your budgeting method of choice, the next step is to start making lists. List all of your monthly expenses on one piece of paper. You’ll also want to start compiling a list of how much you spend on discretionary items like Starbucks, books, clothing, movies and other items. Anything that isn’t an expected monthly expense like your mortgage and phone bill, is a discretionary expense. Don’t forget to calculate how much you spend on groceries each month. Yes, this means you’ll probably have to go back and look at bank statements, credit card receipts, and ATM transactions.
Add up your income streams. If you and your spouse are working, then add your monthly take home income. This is your after tax income – the money that’s deposited into your bank each month. If you have multiple income streams (say you have an online business), don’t forget to add that to your budget. Your financial goals are next. We’re going to take a look at potential goals, what to consider and how to set them, in the next chapter. For now, consider leaving a few spaces in your budget so you can add these in later.
CHAPTER TWO: PLANNING FOR THE FUTURE AND MANAGING FINANCIAL SURPRISES When money is tight it can seem like every little thing derails your budget and financial goals. A water heater breaks and bam, you’re now forced to use your credit card to cover it. Your car has a problem and once again out comes your credit card.
Rainy Day Fund Consider making your first savings goal to create a “rainy day” fund. This fund should ideally be anywhere from £500 to £5000, depending on what you can afford. The easiest way to create this fund is to establish a savings goal, open an online savings account, and set up automatic deductions. Your deductions can be anywhere from £10 a month to £50 a week. Once you’ve reached your rainy day savings goal, stop the automatic deductions. You can now allocate that weekly savings instalment somewhere else.
Why Create This Fund? You now have an account you can easily access and fall back on for life’s little emergencies. Then, when something happens, it won’t devastate your
monthly budget. It won’t put you deeper in debt, and it won’t stress you out. And if you need to access this money, and you probably will, go ahead and do it with a clear conscience. Then simply reinstate the automatic deductions until you fully fund the account again. A quick note here; it’s strongly recommended that you focus on building your rainy day fund before you focus on paying off debt. Establish your budget so you can pay your credit card monthly minimum until you’ve reached your rainy day savings goal.
Beyond the Rainy Day Fund The next step is to decide how much you can afford to save and what your savings goals are. Many financial experts recommend starting your savings with the following two priorities: 1. Emergency savings 2. Retirement savings
Emergency Savings Ideally, you will have six to nine months’ worth of living expenses saved in a separate emergency savings account. Now this account can be a low risk, interest earning account. This will help you reach your goal just a little more quickly and it’s a good idea to make the most of your money. A cash ISA account may be a good choice. Check with your bank or financial advisor for suggestions. Your emergency savings account is there to help you, should you or your spouse become unable to work. It’s the money you will live on and support your family with. It should never be touched unless you are out of work. This means if you lose your job or become ill. It’s not a holiday fund. It’s not an account to save for a car or a new house. It’s for serious emergencies.
Save for this account the same way you set up your rainy day fund. Establish an automatic deposit on a weekly or monthly basis. Having it deducted right from your household current account means you don’t have to worry about temptations. You won’t spend it on a night out with the family and it won’t be missed. If you’re opening up an investment account to build your emergency savings, then you may need an initial deposit. This initial deposit can be several thousand pounds. Don’t sweat it if you don’t have the deposit. Start saving in a traditional savings account. Once you’ve accumulated the deposit then you can transfer your savings to an investment account.
Retirement Savings It can be difficult to know how to plan for and how much to save for retirement. There is an excellent pension and retirement planning resource available online that is provided by the DirectGov website:
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http://www.direct.gov.uk/en/Pensionsandretirementplanning/index.ht m
If you don’t pay into a company pension plan it may be advisable to see a financial planner who can help you decide how much you should set aside and give you advice about personal pensions. Decide what you want to retire with, when you want to retire, and how much you need to save or pay into a pension plan each month. This savings goal will become part of your budget along with your emergency savings goal. It should be automatically deducted from your household account each month so you don’t have to worry about it.
What about College Savings? Most financial experts strongly recommend saving for retirement first. The common quote is, “You can’t borrow for retirement, but you can borrow for college.”
If you don’t have any debt to pay off and you have the discretionary income, by all means set up a college savings account for your child. Again, this is a great time to talk to a financial advisor.
What about Saving for Big Ticket Items? Everyone deserves a little fun. It’s okay to save for a holiday, a new car, or a house - provided you have control over your other savings goals and you’re on track to pay off credit card debt. Consider setting up a separate savings account and once again taking advantage of those automatic deductions. Set a goal, for example £3000 for a trip to Disney, and decide how much time you have to save that money. It may mean giving up satellite television or going out to eat for a few months. That’s the power of a budget; you can take a look at where you need to cut back to reach your goals.
Credit Card Debt That brings us to the final category that is in the budgets of most families – debt. Many people have credit card debt. Use your budget to get control over your spending so you don’t incur any more debt. Once you have a solid idea of how much money you have coming in and going out, you can then create a plan to pay off your debt.
Balancing It All It’s quite possible that you may look at your budget and realize that you just don’t have enough money left over at the end of the month to do it all. That’s fine; prioritize. Here’s a common recommendation for prioritizing your savings: 1. Rainy day fund – while paying the minimum balance on your credit cards and cutting them up. 2. Emergency fund – while paying the minimum balance on your credit cards and cutting them up. 3. Retirement – take advantage of any company retirement plans and initiatives. 4. Credit card debt – start with the highest interest card first. Pay it off while paying the minimum balance on other cards. You can and should also look for a lower interest rate on your credit cards. It can save you thousands annually Now you can probably see why a budget is an ever-changing and evolving document. Your financial goals and expenses may change on a monthly basis. We’ll take a look at how to follow through on your budget and assess it each month in the next chapter.
CHAPTER THREE: FOLLOW THROUGH It’s not enough to create a budget and then stuff it in a drawer. In fact, it’s a waste of your time and as they say, time is money. Once you have your budget you’ll want to create a system to track it, assess it, and make any necessary changes. This process is powerful. It will motivate you to save money. It is empowering too. You’ll feel in control of your financial future and that of your family.
Step #1 – Tracking Create a system to track your expenses. You’ll want to find a place to store receipts, bank statements, and credit card statements. A shoebox isn’t a good idea. An expanding file folder or a digital accounting system or scanning system like NeatDesk can be helpful. At the end of the day good old file folders work quite well too. This system needs to be easy to access so you can file your receipts daily and access them monthly.
Step #2 – Assessing Once you have your budget and you’ve included all of your income and expenses for the month, include one more column – over/under budget. This is the space where you tally your income and expenses at the end of the month to find out how well you did. Did you spend less this month than you thought? Did you spend more? Why? What caused the change in your spending and do you need to adjust your budget? For example, maybe you budgeted that you would spend £200 a week on groceries for the family but you used a lot of coupons and you spent £175. You’re £100 under budget for the month. Fantastic! Do you change your monthly grocery budget or keep it the same? What will you do with the extra £100? If you have debt or haven’t reached your emergency or rainy day savings goals, then the answer is easy.
Step #3 – Changing Earlier we mentioned that a budget is an evolving document. It’s not set in stone. It needs to be able to change as your goals and family financial needs change. Each month, when you take a look at your goals and your budget, you’ll be able to make changes. You’ll be able to allocate money from one expense category to another depending on the circumstances.
For example, if you’ve reached your rainy day savings goal that money can now be put toward your emergency savings goal.
Follow Through Is Essential! Create a plan with your spouse to sit down once a month, or once a week, to go through receipts and statements. Make sure you’re both on the same page with your budget and have the same saving and spending goals. Following through also means making sure that you have a few things in place to protect your family. These are things that your financial advisor or solicitor should help you out with. They include: •
Life insurance
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A living will
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A will and trust
Get these documents in order so that if anything should happen to you or your spouse, your children will be taken care of financially. It’s important!
CONCLUSION A budget is just the beginning. It’s nothing more than a list of columns that you add and subtract. The real power is in how you use those columns. The power is in your financial goals and how you plan to achieve them. It’s not enough to write down the numbers and then forget about them. Take control of your family financial situation and follow through.