Money. Boy, this is a tough topic for everyone, especially for young families just starting out. Decisions you make now will affect you for years to come. Yet, in talking with young families, I find that often very little time is devoted to financial planning. Managing your money to meet your current and future needs is critical and should be discussed at length and often.
First, sit down and set a monthly budget, plus short term and long term goals. Monthly budgets deal with payment of bills, eating out, money to go to savings each paycheck, etc. All of your income should be accounted for in the budget. Short term can be "we will need another car in 2 years" or "we need money set aside for Christmas this year". Anything for the next 5 years can be considered short term. Long term goals are things like, retirement, college funds, purchase of a home or even a 25 year anniversary trip. I am going to talk about monthly budgeting because it is the key to everything.
If you don't get the budget right, none of the other goals will fall into place. Budgets are about priorities. One problem I see a lot with the "me generation" is the failure to realize that starting a family changes the priorities. When you start a family, you may no longer be able to buy every movies on DVD or eat 75% of your meals out. Your priorities are diapers, baby formula and clothing. It is time to readjust your priority list. Make a list of monthly bills that stay pretty much the same. Rent, electric, phone, etc. Make a list of necessities such as food, gas, medical, insurance, clothing and savings. (yes, savings should be considered a necessity.) I will talk more about savings in a separate post. Track the necessities for a month or two, average it out and use these numbers to start. Every 3-6 months you will need to average these numbers again and make adjustments if needed. Now you are ready to budget. If your spending exceeds your income you will have to make adjustments. Credit cards and loans are not a good answer. If your income exceeds your spending, you are ready to work on long and short term goals. Be sure to average annual costs such as insurance so you can set aside money monthly. Also, be sure to include money for doctor visits, school supplies and other common expenses you have.
How do you "trim" the budget if your spending is greater than your income and you are running up debt? The short answer is stop spending. :) Here are ways to reduce spending. Plan your meals and eat at home. Eating out is expensive. It should classed as luxury spending, not necessity. But, even if you already eat most meals at home, you may be able to trim the cost down. Plan your menus ahead for the week, including snacks, make a shopping list and stick to the list. Impulse buying at the store adds to the bill and is seldom for meal items. Most people impulse buy something every time they go in the grocery store. So, reduce the number of store trips and stick to the list. Post your menu for the week in the kitchen and stick to it. When meal planning, include use of leftovers and allow at least one "quick fix" meal per week. (use it when you really don't want to do much cooking, instead of eating out. Frozen pizza or pasta meals work well) I did progressive meals. Left over red beans became chili and leftover chili meant hot dogs. Grill chicken one night and plan to have grilled chicken wraps the next night. Have a leftover night at the end of the week if you have a lot left. Leftovers make good lunches to take to work! Buy meat in family packs which are less expensive and divide it when you get home. Whole chickens are usually cheaper and you can cut it up and divide it when you get home. Try store brands over name brands. Many of them are just as good and are cheaper.
Minimize cash or miscellaneous spending. Allow what you can really afford to not keep track of, (maybe it is $10-20 a week, maybe it is $0 a week) for cash spending on cokes, coffee, etc. Other than that amount, know what your money is being spent on. Carry a lunch, sodas and snacks to work with you. Make eating lunch out a payday Friday treat (if it fits in the budget). If you have $50 dollars a month for clothing and you spent it on the kids new shoes, you will have to wait on getting that cute new purse. Sorry mom. As parents, you may have to give up or cut back on your hobbies until the budget has more money. Family needs take priority over individual needs.
Buy it when you can afford it. If you can't afford to pay cash for a new car, drive a used one that you can afford to pay cash for. If you can't pay cash for a new couch, keep the old one. People spend incredible amounts of money on car notes and other loans and the interest that goes with them when they can't really afford to. If you make enough that a car note fits comfortably into your budget, fine. (I still prefer to buy a newer used car and put that car note money in savings) But, don't add that to your budget if it will strain the budget.
One method that worked well for me to start my budget was envelopes. I made envelopes for clothing, eating out, gifts, vacations, medical, etc. The budgeted amount of money went in the envelope and when it was gone, that was it for spending in that category. If I had eating out money left at the end of the month, my husband and I would decide if it carried over, went to savings or moved to another categories envelope, such as vacation. After doing this for a while you should be able to eliminate the envelopes and still stay on budget.
If trimming the smaller more flexible categories is not enough you may have to look at bigger adjustments. A home with lower rent or moving closer to work to reduce the gas bill. Do what you need to do to live within your means. I am sorry but screw what the Jones are doing. Don't blow your financial future just to impress other people.
If you can't trim the budget to get your spending equal to or less than your income, start looking for a better job or a second job. If you have credit card debt already eating away at the budget, a second job may be the solution. Work the extra job until the credit card is paid off. The best thing you can do for your finances is live within your means. I hope this gives you some ideas to get you started. The important thing is to find a method that works for you and stick with it. So, schedule time to get started (soon) and get that budget working.
The Momma
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