Family finances can be tricky! I would know. I have a bunch of lovable relatives (my nuclear family) who believe we are somehow made of money. Despite having a strict family budget, some members of my beautiful family still try to find sneaky ways to spend more than is allocated to them at any given time.
Of course, budgeting isn’t all about sucking the fun out of everyone’s existence and putting family life on hold. You want people to live a quality life, and you want them to enjoy that life, and that requires some spending money.
But how can you balance the two? Provide your family with a desirable quality of life while still ensuring that your family’s finances are secure for the future.
Strategies for Managing Your Family Finances
The financial security game is a multi-tiered, multi-faceted, and multi-player game. You can’t… I should say you shouldn’t do it alone. You need the entire family pulling in the same direction.
Let’s assume that, like me, you’ve done everything necessary to streamline your spending. By that, I mean you have created a weekly, monthly, and even annual budget, or you’ve taken the time to go through my Financial Reboot Course to give yourself an excellent chance to reign in your finances.
That’s just one level, facet, or player in the game. Now, you need a secondary layer of strategies to ensure that you are not just budgeting to keep living paycheck to paycheck. You don’t want your family’s financial security to go down the drain.
That’s where these strategies come into play.
Create an Emergency Fund
Let’s talk personal finances— $8,883—that’s how much American households have in terms of emergency funds on average. That’s nowhere near enough! The ideal scenario is that your emergency fund should look to cover at least six months of all your monthly household expenses should you suddenly lose your income.
This is where your monthly budget comes into play. Do you see that total figure? It should be 6x that, and then you have your minimum emergency fund figure. Minimum!
I cannot stress this enough: You absolutely need an emergency fund, and some careful financial planning wouldn’t hurt either.
And no, the emergency fund isn’t the money you dip into when you are thinking of going out for dinner over the weekend and you are short on cash. This is the kind of money that will hold you over when something unexpected happens. Emergencies constitute things like:
- Job loss
- Medical emergencies
- Unplanned large purchases (necessary large purchases)
- Natural disaster expenses
You absolutely need to have this money set aside somewhere it can be easily accessed but also not within your day-to-day reach. What I have found to work is that if I can access my emergency fund within 24-48 hours, it is ideal both in terms of easy accessibility and liquidity as well as inconvenient enough that I don’t get tempted to dip into it for something it really shouldn’t be used for.
As Ryan Derousseau, a financial planner at United Financial Planning Group, says, “Rarely would I advise someone to have less than three months in an emergency fund, but there are many cases where I would advise more…If you know you make imprudent decisions whenever money feels a little tighter, then it’s time to up the emergency fund.”
Truth be told, though, this can be difficult to do, especially when you think about it as a whole: 6x your monthly budget set aside? Who has that kind of money? The best approach I have found to work is to set aside a small amount at the beginning.
Make it automatic and let it go into a separate account. Start small; trust me, you will go bigger once you see the amount growing. And by then, saving will have become part of your regular routine, and you won’t bat an eye.
Look Into Life Insurance
Do you have a life insurance policy? If not, you need to get one. They are not a waste of money. Life insurance will come in handy should anything happen to you or your spouse.
Depending on the type of life insurance you get, the cover can help with:
- College savings and tuition
- Last rites and estate planning
- Outstanding obligations, such as house payments
- Replace lost household income
This is one of the most reliable ways to make sure that your future family financial situation is, at the very least, not totally disrupted by your demise.
The problem is that the world of life insurance is vast, and not every policy is going to be ideal for you. Therefore, it’s important to do your research as you pick and choose. Here are some that I have found beneficial, or at least ideal for my family and me.
- Health insurance: This is a must; should someone get critically ill, mountains of medical bills can bury you very quickly.
- Accidental death and disability cover: This comes in handy should you get into an accident that causes disability and takes away your ability to earn at the same level as before the accident. It can also cover some of those massive medical bills that tend to come with accidents.
- Term life insurance: These insurance benefits can help with household income replacement, debt coverage, educational expenses, funeral and final expenses, and estate planning. It is also generally more affordable and flexible than other types of life insurance.
Make Long-Term Investments
Once you have your emergency fund and life insurance set up, you essentially have a financial foundation upon which your family can survive in case of an emergency. You should strive to keep those funds growing gradually, just to pad that foundation better.
Now, it’s time to look into making sure the family isn’t just surviving but also thriving. And that’s where long-term investments come into play. There are a myriad of long-term investment options available, but I think these are some of the most important:
- Retirement investment plan
- Education fund
- Wealth growth
That last one is tricky because we all have different goals, but essentially, it should be geared towards growing your wealth and, if possible, creating generational wealth, or at the very least, looking to give your kids and grandkids a better head start.
Here are some of my favorite long-term investment options.
This isn’t as passive as most people would think; it takes a lot of research and a lot of work in the beginning. But once you get into thegroove, you will find yourself buying up houses faster than you could have ever imagined.
Rental or sale incomes are a wonderful way to keep the family coffers full. Plus, you constantly have some kind of equity, which is perfect when you need a loan for other business opportunities.
Stocks and Bonds
I prefer to do this through a professional hedge fund. Stocks offer capital appreciation and long-term growth, while bonds are good for providing income through interest payments. You can use stocks and bonds to build wealth for your family and achieve a much more balanced investment strategy that nicely aligns with all your financial goals.
Real Estate Investment Trusts (REITs)
If you aren’t really excited about all the research that is involved with real estate investing, then take a short cut through Real Estate Investment Trusts (REITs). This is where you choose a profitable real estate management company and buy some shares so that when they make money, you make money. Let them do all that researching and buyingup properties.
This is all about investing in what’s trending. Recently, most growth stocks have been channeled towards the tech and crypto industries, as they are the most disruptive. With the right pick, growth stocks can be extremely lucrative, but you have to stay on top of things. Yes, that means more research!
Honestly speaking, managing and growing family finances can be fun if you can get the whole family involved. Have everyone think and row in the same direction. Although it will be difficult to do with teenagers, once youinstilla culture of financial prudence in them, they will often veer towards making the right financial choices.
I know there are many other strategies you can use to ensure that your family’s finances are solid going into the future. These are just some that I use, and what I have found is that once you get started in this world, you will discover more and better opportunities along the way. So, get started!