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A Family Budget is Not Just for Rainy Days

posted 27April09

By Lyn Bell

A family budget is essentially a list of your intended expenses and the incomes you expect to receive. The aim, of course, is to make sure that your expenses or outgoings are lower than your income. To quote from Charles Dickens� David Copperfield:

�Annual income twenty pounds, annual expenditure nineteen nineteen six - result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six - result misery.�

Unfortunately these fundamentals have been largely forgotten in the consumer spend up that was happening over the last 15 years or so. This period of excess meant that most of us were spending 110% of our income. And now that the value of our homes has dropped we can no longer use our mortgage as an ATM. Reality has hit. It�s time to get back to basics.

When completing your family budget it is important to include all family members in the process. Children will learn a basic financial skill and together you can find ways to get around potential problems. By making your budget a family affair each family member will be able to take responsibility for helping achieve goals and help reduce expenditure.

Each family�s budget will be different to another but the purpose is still the same. That is, you plan for present expenses and prepare for the unexpected. It also means including expenses for your goals in the future. These can be anything from holidays to education funds and retirement.

When setting your family budget allow for some emergency funds -- a good guide is to build up to three months worth of income. You need to allow for annual bills and not just the ones that get paid monthly. This includes setting aside some money for Christmas and birthdays, after all they come along each year so you shouldn�t be surprised when the occasion arises.

An important part is to �pay yourself first� which means investing for your future. For New Zealanders a good way to do this is by using KiwiSaver as well as other investment vehicles. Think of this as a bill for your future security.

Getting your family budget set up will save you a lot of heartache and helps to know where you stand financially. By reviewing your family budget regularly you can take the worry out of wondering how you will cope. It will make things clearer and you will know what action you need to take to make your family budget work for you.
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