As if saving and investing for the future were not already challenging enough, navigating family dynamics can make it even more difficult to achieve your financial goals. The following tips can help you successfully navigate family challenges and improve your overall financial health.
#1 – Understand the challenges you face.
The first step is to recognize that you are having a family issue with your finances. What, exactly, is happening? The following are some common family financial challenges:
- Overspending
- Unwillingness to budget
- A lack of emergency savings
- Hiding purchases
- Emotional spending
- Irresponsible habits
#2 – Have an open, honest conversation about your financial challenges.
Talking with your loved ones about problematic financial habits can be the most difficult part of the process. Many people’s financial values are established early in life, and it can be difficult to question such a deeply held mindset.
However, talking about each other’s financial values can help you gain a better understanding of where your loved one is coming from. For example, you and your spouse may have very different financial views and fears if your spouse grew up in a household where money was tight, while your family was financially secure enough to spend freely. Having these difficult conversations allows both of you to be more understanding of the other’s financial worries and spending habits.
#3 – Establish shared financial goals.
Take time to identify your financial priorities and establish some shared goals that you both agree to work toward. Doing so can give your family a shared purpose, leading to healthier financial habits.
Keep in mind, however, that not all your goals need to match exactly. Be open and honest about your personal goals, and be willing to listen to your loved one’s individual goals as well. Then work together to implement financial strategies that allow you to pursue both your shared goals and your individual goals.
#4 – Create a budget.
Once you have established some financial goals, it is important to agree on a budget that helps you achieve those goals. Start by breaking down your monthly expenses into the following categories:
- Fixed expenses – Mortgage or rent, car payments, student loan payments, medical premiums, etc.
- Non-discretionary variable expenses – Groceries, gas, medical expenses (such as copays and deductibles), utilities, etc.
- Discretionary variable expenses – Entertainment, concert/sporting events, eating out, travel, gifts, etc.
- Periodic expenses – Insurance payments, annual membership fees, tuition payments, etc. (calculated as a monthly expense)
- Savings – Any amount you regularly contribute to savings that is not automatically deducted from your paycheck
Compare your average monthly spending to your monthly income. Are you spending less than you earn? Are you saving enough to reach your goals? If not, you may need to identify where you can cut back. Perhaps you can vacation closer to home to save on airline tickets, or maybe you decide to eat out just once a week instead of three times per week. The key is to establish a budget your family can agree on and stick to while making progress toward your goals.
#5 – Pay down debt.
Not all debt is bad debt. In fact, without debt, your credit score will decrease significantly. So what debt should you pay down? Start with unsecured debt, such as credit card debt and student loan debt (unless you are eligible for loan forgiveness). The sooner you pay off unsecured outstanding debt, the sooner you will be able to focus on achieving your other goals. That’s why it is important to commit to paying off debt as early as possible. Following are two popular strategies for paying off debt:
- The snowball method, which involves paying off debt with the smallest balance, then moving on to debt with the next smallest balance, etc.
- The avalanche method, which involves paying off debt with the highest interest rate first, then moving on to debt with the next highest interest rate, etc.
#6 – Celebrate your achievements.
A great way to remain motivated is by celebrating your successes along the way. As you achieve certain financial milestones, consider going on a special adventure, having a favorite meal, treating yourselves to a spa or self-care day, etc. Planning your celebrations in advance can give all family members an incentive to work toward your family’s financial goals and a reward to look forward to.
If you could use some help navigating your family’s financial challenges, we would love to have a conversation. To learn more, please contact us.
