How to manage your family finance when all the family members are earning? / Who is managing your family finance?

Managing family finances is an essential part of one's life.  It is not enough if you are just earning, but it is essential to know how that money that you earn is managed.  Managing your money could mean various things.  These include saving for any specific purpose such as travel, marriage and the like, investing to create asset for the future, living within your means, plan to pay off your debts etc.  But whatever be the reason, it all involves proper planning and execution.

When all the family members are earning, it becomes a tricky to manage the funds efficiently.  Individually, the earning members may have certain priorities, likes and dislikes.  Because it is the money that they earned, they would surely want to have a say on how that money is utilised.  At the same time, it might be necessary for everyone to share the burden of the family expenses. It is therefore best that managing family expenses in such an environment is approached with adequate care.  Let us explore some points that could help us manage family finance better.

Common understanding of the complete family financial situation:

The foremost is for all to have a common understanding of financial situation of the family. This will include the home loan payments, children education payments, other monthly payments such as telephone etc. and household expenses. The total expenses should be matched against the total income that is earned. 

Making one person in-charge of managing the family finances

In the Indian context, it is usually the head of the family who entrusts himself with the responsibility.  Alternatively, it could also be the person who is earning the highest income.  It helps to keep one person in-charge as then the financial planning exercise can be properly coordinated.

Allocating funds for major expenses

Next in the order comes, allocating funds for major family expenses such as loan instalments, education fees, insurance payments etc.  It is a healthy practice to ensure that all earning members of the family are made to contribute towards these expenses. This fosters healthy family bonding and instils a sense of responsibility in everyone towards joint family expenses.

Understanding individual priorities, But Save before spending:

The next step is to understand individual priorities of the members of the family- both earning and not earning. Understanding priorities means, what the essential personal expenses that they want to incur for themselves. While understanding this is necessary, all members should be educated on the importance of some essential savings to be done, before the money is spent.  Everyone should be told that some amount of money, must be first saved and then they can spend on their personal expenses.  So emphasis on minimum saving amount, ensures that all the money earned is not squandered.

Follow common rules on spending

When it comes to spending, it may be useful to get into some common understanding on how the money should be spent. It is always good not to blow up the hard earned money on things that offer instant gratification such as new branded clothes, that new book on the rack etc.  Some amount of thought as to how important each expense is, must go in before a decision to spend that money is taken. It is the responsibility of the head of the family to educate the other family members on this issue.

The above steps would help in family expenses being managed in a smooth manner.

(Contributed by Brijesh Parnami, CEO of Destimoney Advisors)