When it comes to your family finances, do you feel in control, or is there room for improvement?
Developing good money habits is the foundation for achieving your financial goals. Whether you’re aiming to reduce debt, move home, support your children or secure your retirement, you need to be able to manage your money effectively.
Here are six ways you can take control of your family finances, improve your money management skills, and develop good money habits.
Review your spending
In order to understand what’s going on with your finances, you need to identify your earnings and outgoings.
Look at the last twelve months, and categorise your spending into key areas. Good categories to use include rent or mortgage, utilities, food, entertainment, insurance, holidays and savings. A simple spreadsheet can really help here, and you can use it going forward to track your spending too.
Once you’ve identified your outgoings, add in any monthly income you receive. This will give you an instant feel for how healthy your finances are looking. Think about the following questions:
- Are certain categories draining your money?
- Are you surprised by how much you’re spending on a particular area?
- Where would you like to see the majority of your money going?
- Are there areas where you can make some easy savings?
Thinking about these questions and making a plan for putting some changes into place is a good way to start improving your financial habits.
Once you understand your spending, you’re in a great position to start budgeting.
Having done the groundwork by reviewing your family finances, you should be able to set a realistic budget that you can stick to.
Once you’re in the habit of working within a budget, check your progress regularly. Doing this will help you stick to your financial goals, and also allow you to identify money issues before they become a problem. You can see the progress you’ve made too, which is a great motivator.
Having the right insurance policies in place can make a huge impact on your finances, and as such it’s an area of expenditure which you should definitely aim to understand.
Most households think about insuring their property, car and valuable possessions. But if your family is reliant on your income, it’s equally important to insure yourself. Life insurance and critical illness cover will provide financial security should the worst happen, and health insurance will cover unexpected health care expenses. And don’t forget travel insurance; holidays are often a significant expenditure, and as such it’s wise to protect your investment.
When it comes to choosing insurance, comparison sites can help you evaluate the various options available. However, it’s not ideal to base your choice solely on price. Compare By Review specialises in insurance, and compares providers based on the service they offer rather than the price alone. This type of comparison allows you to make a much more informed decision on this important element of your finances.
Debts are a common element of many family’s financial situation; according to the Money Charity, the average UK household has around £60,000 in debt. Being able to manage your debts is crucial if you want to stay in control of your finances. It also plays a key part in maintaining a good credit score should you want to secure a loan or mortgage in the future.
If you have debts, make it your priority to pay them off as quickly as possible. You should also try to avoid adding to any existing debt by doing things like paying off your credit card in full each month to avoid charges, sticking to your monthly budget, and avoiding situations where you know you’ll be tempted to spend more than you should.
Some people find using cash an effective way to limit their spending; there’s something about handing over real money that makes us think twice!
At the very least, you should be making the minimum monthly payments on any debt, but be aware that this approach can still increase the amount you owe due to interest charges.
If you’re already stretching your finances to their limits, the idea of saving can feel like a pretty unachievable goal. However, saving regularly is definitely a good financial habit to aim for, even if you can only manage a small amount.
As well as helping you deal with unplanned expenditure, saving regularly can help to provide financial security in the future, and allow you to buy that big ticket item or holiday that you couldn’t afford otherwise.
If you’re able to save a regular amount each month, a savings account or tax efficient ISA are good options. When making your choice, think carefully about how easily you’d like to be able to access your money, as this can vary widely between accounts.
If saving each month is too much of a stretch, small changes to your habits can still make those savings add up. Replacing takeaway coffees and convenience food with homemade alternatives, leaving the credit card at home, and giving yourself a cooling-off period before an impulse purchase are all great ways to reduce your spending.
Teaching children financial literacy
It’s never to soon to start teaching your kids good money habits!
Giving them ways to develop their financial literacy will help to prepare them for adult life – and it could also reduce the amount of money you need to provide to support them.
A simple piggy bank is a great way to start teaching young children good habits with money. They will love the responsibility of looking after their own money, and you can teach them the value of saving by agreeing a goal they can aim for, such as buying a much-wanted toy.
For older children, a current account is an ideal way to introduce them to managing their own money. You can also use this to teach them about how bank accounts work, safe transactions, and looking after their personal data. If your kids are used to handling their own money in this way before they start working or managing things like student loans, they’re well on their way towards good money habits.
Do your practice any of these money management methods with your family finances? What’s your top tip for creating good financial habits?