Family Budget Tips From a Financial Advisor

We’ve all heard the cliché that claims kids are expensive, but there is also much truth to this statement. Raising a family in the 21st century requires a significant financial commitment, which puts a tremendous stress on families. For example, purchasing diapers, formula, toys, clothing, and child care easily adds up every month. Without proper budgeting, families can quickly find themselves unintentionally in debt. However, with some intentional financial “cleaning” and organizing, many families can reduce their debt and save money.

The issue then becomes finding the time to sit down as a family to discuss finances. Our lives are so impacted with work obligations, after-school activities, homework, and meal prepping that financial planning may feel like a luxury that not every family can afford. If you’re like me, you may even find the idea of creating a budget a bit overwhelming because of all the moving pieces involved in our family’s lives. 

To help support your family’s financial needs, we interviewed an experienced financial planner to give families advice on budget-friendly tips rooted in financial wellness. As a financial planner, Wendy Wan Turk works with clients to create comprehensive plans that consider both the numbers and the emotions surrounding money. She has an ongoing podcast, Money Talks, where women of diverse backgrounds tell stories about their personal experiences with money, and she also created Money & Me, a children’s education program that teaches financial literacy at an early age. Below is Wendy’s expert financial advice to help all families achieve their financial wellness goals in a sustainable and realistic fashion that meets the diverse needs of all types of families. 

Meet the expert
Wendy Wan Turk
Investment Adviser
Wendy also has an ongoing podcast, Money Talks, where women of diverse backgrounds tell stories about their personal experiences with money. She also created Money & Me, a children’s education program that teaches financial literacy at an early age.

 

The Importance of a Family Budget

Wendy believes a family budget is an “extremely important” investment all families should have. Without one, it makes it very challenging to plan financially if you are unaware of the amount of income and expenses your family has. Plus, “with families come many more expenses, from large ones like child care and camps, to small ones, like snacks and extra driving.” All expenses add up, and without adequate planning, it can result in families facing financial challenges. 

 

family budget

Source: Olya Kobruseva | Pexels

 

What Should Be Part of a Family Budget?

According to Wendy, all budgets should have certain components included in discretionary and non-discretionary categories. The main budget categories comprise “total gross income, expenses, and savings going toward retirement, education, or other financial investments. Families generally have even more categories because they have additional items to budget for.”

Below is a sample family budget based on Wendy’s financial planner expertise.

  • Non-discretionary Categories: Housing, utilities, etc.
  • Discretionary Categories: Food, entertainment, travel, child care, grocery items (diapers, formula), enrichment activities and sports, summer of seasonal camps, vacations, etc. 

 

Expenses That Grow as Kids Do

When kids get older, the expenses tend to grow, too. For example, teenagers getting cell phones or a car can significantly impact a budget. Wendy acknowledged, “One of the biggest issues with family budgeting is that often, there are seasonal or non-recurring expenses.” For example, summer camps are not cheap but are generally paid off in a short period of time prior to them starting. Because of these factors, Wendy advised “parents to have separate savings accounts where they can put away money each month to be spent for one summer,” for example.

 

Large Expenses Like Cars, Homes, Vacations, and College Savings

Large expenses are a vital component of a family budget because “these items take diligence [to] save … over a longer period of time. Big purchases like a car, a house, college tuition, a family vacation, and home improvements are all examples of expenses that would be beneficial to include in a family budget.

Generally speaking, For larger expenses that “have a time frame longer than two years,” Wendy said, “I’d advise setting aside a set amount of money monthly to invest and hopefully grow.” As a financial planner, Wendy works with families to figure out how much is needed to be saved monthly for that large purchase. “Starting to save any amount toward these goals creates a good habit that can slowly build up over time,” she said. For some families, if they have a bonus or receive a lump sum income, this amount can also be earmarked for a large expense.

 

For Families in Credit Card Debt

Credit card debt can sometimes feel debilitating for families at the detriment of saving and investment, Wendy said. With that said, Wendy advised families to pay down the credit card debt if it is taking a large portion of the family’s income at a high interest rate. 

To pay down credit card debt, Wendy recommended the following:

  • Create a realistic monthly budget where you move to a cash or debt system so there is no way to overspend. This reduces the likelihood of the credit card debt increasing by limiting spending in general. In order to do that, you may need to hide those credit cards to avoid any temptations! Just don’t forget about those annual and semi-annual expenses that may require some savings, like property taxes and insurance payments.   
  • Decide on any items that can be reduced or cut. Get creative with how to decrease or eliminate expenses. A little savings can eventually go a long way by providing “a cushion of emergency savings or can help toward paying off the credit cards more quickly,” Wendy said.

If families have multiple credit cards, Wendy suggested the “snowball” method to assist with paying off the debt faster. Instead of trying to pay off all credit cards at once, the “snowball” method encourages you to “concentrate your efforts on the credit card with the lowest balance.” Once the lowest card is paid off, you can use those payments to pay off the second lowest card, etc. This method inspires families to pay off the credit cards because the positive results are more immediate and rewarding. 

 

family budget

Source: Antoni Shkraba | Pexels

 

How to Start Using a Family Budget 

Starting a family budget can be intimidating at first but empowering once you create one because it gives you control over your savings and expenses. Any time is a good time to start, and you can always tweak the budget as needed. 

Wendy suggested three steps in establishing a family budget.

  • Analyze What You Spend: This can be done by reviewing two to three months of credit card statements or just jotting expenses down for a month. Once you are more aware of your expenses, you study them to determine if they are “realistic, low, or increasing.” With this information, you can decide how much money should be allocated for each expense type.
  • Evaluate How Your Expenses Line Up With Your Pay Periods: Depending on if you are paid monthly, biweekly, or semi-monthly, this can determine “how your bills are paid and, subsequently, how much money is saved.” Generally, larger expenses are due the same time each month, but smaller expenses vary and tend to be weekly. Wendy advised that once the larger bills are paid, a family can more easily monitor a weekly budget rather than a monthly one. This provides a smaller amount to deal with and the flexibility to reset if the budget isn’t working out as anticipated.
  • Monitor and Adjust Budget as Needed: Being open to tweaking the budget is part of financial planning. “No one gets it exactly right the first time,” Wendy said. Over time, once you get used to your budget, “you can actually plan for life’s fluctuations. The more you keep at it, the easier it gets!” It becomes second nature in no time.
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