A Comprehensive Guide on How to Improve Family Finances
January 29, 2024
Learning how to improve family finances, namely the household’s daily expenses, both primary and non-essential, is the first step in attaining true financial security.
If you are not careful with how you spend your family income, you will inevitably find out how quickly and easily money slips away from your grasp. You will also likely need help saving money for a rainy day and planning for your future.
That’s why we’ve prepared this extensive guide that’ll help you improve your financial situation and maximize your income.
- Knowing how to improve family finances is necessary for all families, regardless of size. It helps regulate each family member’s spending habits while encouraging everyone to be more careful and considerate with their money.
- The most common cause of low-income family financial management is basic financial illiteracy and related challenges, such as unmanaged debt, lack of concrete financial planning, and poor discipline.
- There are several ways to improve family finances, such as tracking expenses, setting up a monthly budget, organizing and securing financial documents, and practicing healthier spending habits.
- Setting up emergency funds can be done gradually, depending on the family’s financial health. It is also best to balance saving money for emergency funds with setting aside cash for other plans and essential family expenses.
Causes of Poor Family Financial Management
Identifying the common causes of low-income family financial management is the first step to improving your spending habits.
Below are some of the main issues that hinder some families from regulating their expenses and protecting their funds:
- Financial illiteracy. Financial literacy is essentially an umbrella term that denotes basic financial education, which leads to developing and practicing critical financial skills that let you budget your finances better, understand when it is best to invest money and maximize your gains.
- Unmanaged debt. While this issue relates to financial literacy, it’s important to note that there is nothing wrong with getting a loan, especially in an emergency. However, some people carelessly incur additional debts without paying off their existing loans until they get stuck in a vicious cycle of borrowing ever larger sums of money in an attempt to pay off the old loans.
- Poor discipline. Are you susceptible to buying into sales and promotions that you would otherwise do just fine without? If so, you need to practice self-control and learn about human nature and common advertising practices so you can understand and control your impulses better.
- Lack of planning. This one also relates to financial literacy, as it entails learning how to plan your expenses ahead as well as how much you intend to save. To improve your family finances, you need to have a concrete breakdown of your current and future expenses in order to determine the amount you should allot for your daily expenditures, your emergency funds, and other necessities you may have in the future.
12 Ways to Improve Family Finances
Now that you know some of the most common issues affecting your spending behavior, it’s time to learn the different ways to improve your family's finances:
#1. Track Your Expenses
Tracking your expenses means listing down all your household's daily and monthly expenditures, from the most to the least important.
It would only be possible to create a compelling and viable strategy to manage your income by first identifying where and how you spend it in the first place. You must factor in educational and transportation expenses if you have dependents.
Your expenses may also vary depending on whether you pay rent versus a mortgage, drive or commute to your destinations, or file taxes as a single, married, or head of household taxpayer.
All these expenses help you estimate your total monthly expenditure, which you will compare with your regular earnings and target savings. Furthermore, monitoring your expenses lets you pinpoint any unnecessary costs you need to stop or cut from your budget.
#2. Set up a Monthly Budget
The key to setting up a monthly budget that works with your earnings is to use your pay stub as your reference.
Since your pay stub declares your net earnings, withheld taxes, and contributions to health insurance and retirement plans, you get a holistic view of your monthly earnings and deductions.
You also have a more accurate amount when allocating specific percentages of your income to your essential expenses.
The 50-30-20 budget rule is a popular budgeting strategy wherein you set aside 50% of your earnings for your basic needs, 30% for your wants, and 20% for your savings.
#3. Save & Organize Your Financial Documents
Keep copies of your W-2 forms, paychecks, and receipts. Your W-2 forms summarize your total annual earnings and withheld taxes from the previous year. The document is handy when filing your tax returns and determining whether you qualify for a tax refund.
Meanwhile, pay stubs come in handy when securing loans because banks consider pay slips a viable proof of income
At the same time, calculating how many pay stubs are 30 days’ worth allows you to do more accurate budget planning and set aside sufficient funds to cover your family’s monthly needs.
Keeping receipts and copies of your utility bills helps you to be more aware of where you spend your money. You can use both documents to stay updated with any price changes in your necessities and utilities that may entail adjustments to your budget.
For instance, your latest grocery receipt may show significant price increases for dairy or meat products. Or, your internet service provider may have recently increased your subscription rates.
#4. Be Smart About Taking Loans
As much as possible, make sure you only apply for loans in a real financial emergency and, more importantly, loan money within your means.
That means resorting to loans when it’s the only viable option and avoiding any amounts that exceed your average monthly income. Adjust your savings and expenses in advance to apply for a mortgage or a car loan.
Make sure you do not have existing debt before applying for a new loan. Try to increase and maintain a good credit score and history to increase your chances of qualifying for a higher loan amount if you need it and, more importantly, of getting a lower interest rate.
#5. Consider Changing Your Habits
Some habits that are already part of your routine may counter your established budget plan.
Eating at restaurants, ordering takeout, booking ride-hailing services, and hiring laundry services seem like small, harmless expenses. Unfortunately, these spending habits tend to pile up and exceed your monthly allotted funds.
Instead of having food delivered or eating out, why not bring a packed lunch to work or school?
Wake up an hour earlier so you have enough time to prepare and walk or commute to work or school. Set a schedule for cleaning and tidying up your home, including doing the laundry and organizing your wardrobe.
In this manner, you can continuously improve your family finances while avoiding unnecessary expenditures.
#6. Monitor & Track Your Account Statements
Sometimes, the simplest way to improve family finances is to secure your bank account details and credit card information. You must keep all sensitive information regarding your finances and bank account confidential.
If you are not careful, you may fall victim to fraud and lose money without your knowledge. Monitor and track your account statements, and be wary of suspicious activities or unauthorized transactions.
Report any strange activities in your account to prevent scammers from stealing your identity and money.
#7. Set Realistic Goals
Have clear and realistic objectives for your financial plan. Try to balance your financial goals with your current income to make all adjustments to your expenses more manageable.
Let’s say you want to save money for your educational expenses or have plans to renovate your house and require more funds to make the repairs possible. Yet, you still have existing loans that you need to settle.
The best course of action is to focus on repaying your loans first before creating a budget plan for your upcoming expenses.
Another example of setting realistic goals for improving family finances involves adjusting the 50-30-20 budget rule to suit your monthly earnings. You may be a freelancer or an independent contractor whose income is less stable and constant than that of a regular, salaried employee.
If so, you don’t have to strictly set aside 30% of your income for your wants. You can adjust it to 20% to allocate more funds for your necessities and savings.
#8. Use a Pay Stub Generator
If you’re earning irregular income by freelancing, a tool like a pay stub generator will help you create your own financial documents and, in so doing, let you create a reliable pay stub budget and monitor your earnings and expenditures.
As an independent contractor, you do not have an employer to depend on to record your earnings and taxes.
Similarly, owning a small family business requires more staffing to handle payroll and accounting duties. Our paystub generator lets you create pay stubs even with limited time and resources.
With ready-made templates that take less than a minute to fill out and a built-in calculator to ensure accurate calculations for your gross and net income and deductions, you can backtrack all earnings from past clients and keep your business’s accounting books updated with your accruedexpenses.
The best part about using our pay stub generator is that you can download and save a PDF copy of your pay stubs for future use.
#9. Have an Emergency Fund
Creating an emergency fund establishes a safety net that will keep your family secure in case of an emergency or unforeseen changes in your employment, such as a layoff or termination. Ideally, your emergency funds must be worth three to six months of your regular expenses.
Building an emergency fund from scratch can be daunting, so it is alright to start small and then grow your funds gradually. Don’t aim to save six months' worth of funds instantly, especially if you have limited income.
Be careful to dedicate a manageable portion of your savings to your emergency fund. After all, your emergency funds are just one aspect of improving your family's finances.
#10. Find Additional Sources of Income
Whether you have a full-time job or earn money through project-based opportunities, find other ways to increase your earnings and improve your family finances.
Having additional sources of income enables you to generate extra money and increase the portions you set aside for your daily expenses, emergency funds, savings, and plans.
Some individuals earn extra income specifically to repay their existing debt or save money for an emergency, such as when a family member has to undergo medical treatment.
Make sure you can handle taking on extra jobs to prevent getting overly fatigued or burned out.
#11. Consult a Financial Advisor
An objective and experienced eye is what you need if you want to evaluate your spending habits, existing budget, and long-term financial plans more comprehensively.
Seeking the professional advice of a financial expert may bring more insightful tips on how to improve family finances. Financial advisors can delve deep into your unique financial situation and pinpoint areas where you can improve your savings and manage your money better.
They may also guide you in establishing a more thorough strategy to balance your expenditures and ensure you can grow your funds effectively for your future goals.
#12. Communicate With Your Family
Discussing your expenses with your family allows you to figure out how to divide the costs among each other and find a way to secure your savings for your household’s financial needs.
Often, families who avoid initiating conversations involving money take selfish and impulsive actions that compromise the household’s finances.
You can have every working family member contribute to grocery expenses or divide your utility bills according to your average monthly earnings. You can also devise different approaches to maximize your savings.
For instance, you can have a jar that family members must fill up if they need to remember to do their chores or make unnecessary monthly purchases.
Discussing your family’s budget and spending behavior makes you more conscious of how money-related decisions can affect your household’s financial health in the long run.
The twelve tips discussed in this article highlight the most practical and straightforward methods to improve family finances, so take some time to explore which tip or method supplements your objectives and budgeting plan the best.
Combine two or more tips for a more effective money management strategy. Furthermore, remain goal-oriented, objective, and realistic when improving your family’s finances.
Don’t be afraid to modify and adapt your plan to accommodate sudden economic changes and monetary adjustments within the household.