Family budget and cash flow planning are essential tools for any successful financial plan at any life stage. It is a necessary ingredient for a successful marriage and happy relationships as it helps you to see where your money is going and brings family on the same page.
1. Monthly vs Annual
Track your regular income and expenses in monthly section and irregular lump sums – in annual section. When separated visually it helps to avoid counting annual tax refund or “expense” vacation or private school bill before it actually happens. MS Excel is wonderful for cash flow planning as you have a great degree of control on how to design your spreadsheet. You can download cash flow sample.
2. Expense tracking via credit card online
Today banks offer free expense categorization and tracking tools built into their online banking under credit card’ section. Small cash expenses (coffee, parking) are easily forgotten, so using credit card will allow you to track them on line and on paper.
3. Weekly review
Think of yourself as a CFO of your family. Every successful business has audits and expense authorization process. When you sit down to track your weekly expenses by dropping various charges into different buckets, you psychologically condition yourself to spend less next week, prepare for the coming credit card bill, analyze your spending and… spot any issues and problems with unauthorized charges/overcharges right off hand.
4. X-Ray small items
Start small. Bank service charges, overdue penalties, credit card interest, old and forgotten subscriptions – are all small items, but they can easily add up to $30-$40/week. Think of the economical cost of these “small items” in a long run. $38.46 per week escalates to $2,000 per year and, if invested on a regular basis with 5% return (ex: medium risk, balanced portfolio) would yield you over $95,000 at retirement.
5. If your expenses are tax deductible
If your have expenses eligible for tax deduction for investment of business purposes – keep those on a separate payment vehicle: bank account, line of credit account or credit card. Consult your accountant and set it up properly right from the beginning. Getting separate statements configuring it all for you is a real bliss too.