BUDGETING WITH A FAMILY – GUEST POST

With an accounting spin in mind, achieving a budget with four kids and a wife who likes to spend poses many challenges.

Using the German concept of Weltanschauung – view of the world based on my experiences over the last thirteen years of marriage and eleven years of budgeting with kids, the following perspectives are put forward:

Data: Family members  

Me: Working fulltime and completing a part time Masters in Accounting at CSU.

Have no free time as I’m either studying or working but do enjoy the occasional red wine.

Wife: Working part time and completing a part time Masters in Nursing Management at UOW.

Loves clothes, shoes and shopping.

Boy 1 – Age 11: Has no concept of saving, plays competition soccer, cricket, tennis, guitar, chess and rugby. Member of “I want and I know everything” society.

Boy 2 – Age 9: Has no concept of saving, plays competition soccer, cricket, swimming, tennis and drums. Member of “I want” society.

Boy 3 – Age 8: Has no concept of saving, plays competition soccer, cricket, tennis and swimming.      Member of “I want it now” society.

Girl 4 – Age 3: Has no concept of saving, goes to swimming lessons and dancing. Member of “I want it now and everything is mine” society.

As can be seen from the above data, my family and I lead a very busy life. When considering how to budget for this lifestyle, the following concepts need to be considered.

Opportunity Cost is the cost of passing up the next best choice when making a decision. Do I take the wife and kids out for dinner, or do I stay home and cook dinner for the family. The opportunity cost of dinner at home is giving up the satisfaction of eating out. The opportunity cost of eating out is the money we would have saved if we stayed at home.

The social person would place more weight on the social benefit received and select the option to maximize the emotional benefit received. Happy wife, happy life!

Prepare a budget by adding up all of your consumption expenses for one year. Determine how much you can afford to spend weekly or monthly in each category.

It is useful to break expenses into categories: mortgage/rent, food/alcohol, bills, clothes, car/transport, holidays, health, phone/internet, restaurants/coffee, weekly spending, presents, savings, investing, loans, emergencies. An ‘emergency fund’ enables greater flexibility in adapting to future scenarios, such as unforseen events, without eating into other funds.

Keep a realistic view of how much you can actually afford to allocate to saving, investing, holidays and other consumption expenses. The ‘pay yourself first approach‘ is popular: allocate funds to your savings or investing account as the highest priority, and then distribute the remainder of your cash amongst the other categories. In this way, during tough times, it won’t be your savings which suffer.

Not many people know where every dollar goes, so if you’re not up for constructing a spread sheet, chat to friends about how they manage their family finances and see if you can adapt ideas to your lifestyle.

Construct ‘what if’ scenarios to ensure budgeting strategies can be modified to accommodate the changing circumstances that can be thrown at us during the year. What if we allocate 10% of our salary to saving and investing? What if we have another child? What if we receive $4000 in tax refunds?

As each family need is achieved, family members strive for something new, or as I like to phrase it “I want” syndrome. Find a balance between enjoying life and striving for the next new thing.

Lessons 1: When deciding whether to spend or save, find a balance between maximising the social benefit and being frugal.

Lessons 2: Learn to say “No”.

Lesson 3: For the partner that spends the most – if they need a credit card, make sure the limit is low, as the social embarrassment of being caught overdrawn will curb their spending splurges. Tear up any junk mail to increase their limit.

Lesson 4: For Christmas and birthdays, money can be given to kids rather than toys to prevent the build-up of excess amounts of toys. We have 4 kids but 8 bikes, supposedly to entertain the rest of the neighbourhood.

Lesson 5: Don’t hoard. Dump excess clothes and toys on friends or sell on eBay.

Lesson 6: Look out for bulk buys in the supermarket – compare unit cost instead of overall cost.

Lesson 7: Encourage kids to read or play games outside, rather than purchase a game console. If a mind-numbing device is needed, I suggest IPod Touch as the games are cheaper to buy compared to your Xbox or PS3 (this Christmas, mums have being buying kids as young as 3 this device – what happened to the peg in a plastic bottle toy?).

Lesson 8: Plan costs for the next 12 months with any major expenses flagged to prevent any surprises jumping out at you during the year such as uni fees. Include an emergency fund.

Lesson 9: Pay yourself first as a priority. Always allocate even small amounts of cash to a savings/investing accounts.

Lesson 10: Don’t mentally pre-allocate a windfall of funds on unnecessary consumption expenses. Decide what would be the best use of funds for your family’s financial future.

Overall: With a family of six, life can get pretty hectic, plan for your major expenses during the year and learn to say no to the kids and partner, however when deciding to splurge or resist the urge, consider the social benefits and opportunity cost involved.

Leonardo Da Vinci’s Vitruvian Man portrays an image of the perfectness of mankind. If this was only true! Each family is unique in their own way, each with their own in-perfections, however this is what makes life interesting.

Happy Budgeting!

Andy – Wollongong  ;-)

Disclaimer: The above comments only reflect the views of the author. In considering your own financial plan, independent advice should be obtained from professionals within their field. In no way should the above advice be considered as a template for financial and emotional success.