The Basics of Family Finances

Man counting dollar bills which represents that we must know the incoming money so we know how much to save
February 12, 2023

At the end of the day, financial freedom requires correct choices and actions. These are the steps that can help you gain control of your finances and to better take care of your family.

How is it possible to take care of all the basic needs of your family? Economic pressure is around the corner. Inflation is higher than it has ever been over the past three decades. The Labor Department reported that energy prices are up 13.1% over the past 12 months. Food prices were up 0.5% month over month and 10.6% year over year and shelter costs continue to rise.

Life seems to only be getting more financially challenging. Every family has a responsibility to provide for its own needs to the extent possible. But, that’s easier said than done. Here are a few steps your family can do to combat the economic pressure present today.

 1) Evaluate your Finances

Evaluate the condition of your finances – set aside time to focus on your finances. You will need to understand the true state of your financial health, write it down in a way that you can easily compare your income against your expenses, and map it out until you see the entire picture of your finances.

To do this, grab a piece of paper and divide it into two columns. Name the left column “Income” and the right column “Expenses”. In the left column, list all your family's monthly income and compute your total monthly income. In the right column, list all your monthly fixed expenses like mortgage, loan payment, education expenses, food expenses, transportation budget, water bill, electricity bill, etc.

 Through this, you can easily figure out your financial health and make the necessary adjustments. If income is higher than expenses, start listing your variable expenses like dining out, recreation, and savings. Those variable expenses are important to our well-being so we do not want to cancel them out in our financial planning. But, what if expenses exceed our income?

 2)  Increase Income

I suggest increasing income, reducing expenses, or a combination of the two.

We are all given talents and skills that we can use to gain money and increase our income. Ways like working a second job or overtime, asking for a raise, participating in e-commerce, turning your hobby into a business, and looking for a new job are the actions we can take to increase our income.

●    Get a second job or work overtime– globalization opens the door to many opportunities. Today, there are lots ofjobs that offer flexible working hours or can be scheduled after your regularjob. These kinds of jobs are mostly available on the internet and requireminimal supervision like data entry, making web content, and creating webdesigns. Or you can work as a waiter in a restaurant or a driver in a transportcompany at night.

●    Ask for a raise – your companyknows your value and contribution to the company. Research the updated pay ratefor employees in your field. If you feel that you already deserve a raise, talkto your reporting manager and I am sure he/she has something for you.

●    Participate in e-commerce – a bigpercentage of the market today is in e-commerce. Because of the internet,people can easily communicate and buy or sell items online. E-commerce is aneasy-entry business because of the small capital needed and not much inlogistics and manpower. Search for a product and create your own network andstart selling. Many people turn to be successful and resigned from their job tofocus on e-commerce.

●    Turn your hobby into a business –turn your talent to be your profit. If you love basketball, try to enter a business related to basketball like selling jerseys, basketball socks, shorts, and equipment. If you love to communicate, try online selling or start blogging and building up your own website. It is more convenient and easier today to connect in virtual communities.

●    Look for a new job – be brave to search and grab better opportunities, be certain that this new opportunity will increase your income before leaving your current job. Go out of your comfort zone and explore.

 3) Decrease Expenses

Reducing expenses isn’t always an easy thing to do. But, knowing the difference between your wants and needs can make the difference. There are many factors why we fail to manage our expenses and we need to be careful to identify them in order to overcome them. For most of us, money can be hard to earn but easily spent.

The world is offering us many products and services that can be enticing and will lead us to financial bondage such as brand-new cars, luxury bags or shoes, the latest iPhones, laptops, and traveling.

 We need to go back to our notes and review our expenses. Try to check if we can make a small cut to variable expenses like dining out, groceries, and recreation. Most of the time, the money we spent on variable expenses can be saved by thinking of new, creative ways for recreation, dining out, and playing games with a very minimal budget.

For example, instead of paying a restaurant for a family dinner, we can set up a nice table in our backyard, add a few decorations, and cook our own food.  Here are a few concepts we can adapt to backup our efforts in reducing our expenses.

●    Discipline yourselves in your purchases – we all want the latest available products. For example, making an expensive upgrade on your mobile phone. Most of the upgrades in features, security, and functionalities of mobile phones can be obtained by running an Operating System update which is free. Try to review the latest releases of mobile phones before buying, you might buy an upgrade which isn’t worth it.

●    Avoid debt – spending less money than you make is essential to your financial security. If you are in debt, pay your debt as quickly as possible. Debt is bondage. If you want something, save money for it.

●    Live within your means – learning to live below your means will help you to become financially sustainable. If you are earning $1,000 monthly, plan to spend less than $1,000 per month. You can avoid financial problems and find the peace that comes with financial freedom. Do not rely on credit cards to cover bills and expenses. The additional interest you’re charged to use credit cards can make it extremely difficult to get out of debt.

 4) Build an Emergency Fund

Consistently setting aside money will help you in times of need and adversity. We do not know what the future will bring, we need to prepare financially for our security and well-being. I learned about the 50/30/20 rule that states 50% of our monthly income should go to fixed expenses like food, mortgage, transportation, education, etc.

The other 30%will go to other spending which is our variable expenses like dining out, recreation, family activities, and wellness. The remaining 20% should strictly go to our savings. If we are consistent, gradually our savings will grow, and we will gain more peace that comes from financial freedom.

 5) Choose Sustainability

During the pandemic, I learned that being sustainable can bring great things to the table. Food is a big part of our expenses and that is a necessity that we cannot remove from our daily lives. Economic pressures can be lessened if we start to become sustainable. Instead of buying vegetables for our meals, why not plant vegetables in our own backyard or community garden? The vegetables we plant can sustain our needs for the next six months and that is already a big cut in our food expenses.

 Why drive a car if you can ride a bike, get exercise, and save money on gas? Biking saves on vehicle expenses while also saving you on medical expenses down the road!

 At the end of the day, financial freedom requires correct choices and actions. The basics of family finances will require basic wisdom and small but consistent actions. As you follow these steps, they’ll help you gain control of your finances and to better take care of your family.