Home life cannot be separated from financial problems. Therefore, managing household finances is not a simple matter. It is necessary to properly manage household finances so that all family needs can be met.
Many factors affect household finances. Starting from the obligatory needs that need to be met, ending with the desire or consumption that is additional or entertainment. Managing household finances is not just the responsibility of one person. Both husband and wife play an important role in managing household finances.
What are the risks of mismanaging household finances? The effects can be devastating. A lack of management in managing household finances can disrupt family harmony.
Then how to manage household finances is good and right? Here are ways you can effectively manage your household finances.
1. Understand the difference between needs and wants
The first way to manage household finances is to understand your needs and wants. Of course, when you are married, some needs need to be met. For example, from daily necessities such as food to sharing the upbringing if you already have children. However, in practice, household finances are used not only for obligatory needs but also for expenses based only on desire.
Unfortunately, we sometimes allocate more household funds not to needs, but to wants. Many of our desires are not necessary. Examples include buying the latest fashions, the latest gadgets, holidays, and other secondary and tertiary items. All of them can absorb quite a lot of money.
Nevertheless, it is not forbidden to fulfill all these things. That means you can only allocate funds for these things after primary budgetary needs are met. What are the primary household needs? The first is necessities for daily living such as food, transportation, raising children, or paying for household necessities.
So, to manage household finances, you must first understand the difference between needs and wants. First, meet the needs of the household, then allocate finances for personal desires.
2. Calculate all earnings
To effectively manage household finances, all you need to do is calculate all of a month’s income. The income mentioned here is not only the monthly salary income but also includes the incentives you get when you earn overtime wages to make profits when you invest.
This is important so that you can split the distribution of your income among the needs you have to meet. Remember that the first thing that needs to be met is a primary need. Calculating all income makes managing household finances easier.
3. Make a list of monthly priority expenses
Next, create a list of top expenses for the month. This list will help you manage your household finances effectively. Creating a prioritized list will help organize budget allocation and spending.
Household expenses that are included in the list of priorities include the cost of daily meals, kitchen expenses, utility bills, water bills, transportation to work, school-age children’s education to a car, or housing installments.
In addition to helping manage household finances, this list is a reminder that priority needs must be met first and then can be mapped to secondary and tertiary needs.
4. Prepare an emergency fund
The next way to manage household finances is to set up an emergency fund. In married life, not everything can go as planned. Many things suddenly happen that are not planned.
Examples that occur frequently are disasters such as accidents, layoffs, and even major economic crises. When any of these three things happen, the source of household income can be disrupted. That’s when the benefits of an emergency fund budget come into play.
To manage household finances well, it is important to set up an emergency fund. The trick is to set aside a portion of your income for an emergency fund each month, in addition to basic needs. The relative amount can be 10-30 percent of monthly income. Remember that the money you set aside each month is for an emergency fund, to be used only occasionally or in an emergency.
5. Maintain leverage
The best way to manage household finances is to avoid debt. After all, bills and obligations to pay off debts can be a burden that shakes household finances. However, some factors are inevitably at fault.
As a suggestion, if you’re forced to go into debt, use it for things that are basic needs but can’t be met soon. For example home mortgages. In addition, you should avoid going into debt.
Another thing you need to do to manage good finances is maintained your debt ratio. If possible, make sure that your payment obligation does not exceed 30 percent of your income. In addition, your household finances can be disrupted.
6. Allocation for savings, insurance, and investments
In addition to allocating income for a reserve or emergency fund, you must also allocate income for purposes other than routine needs. This includes spending on savings, insurance, and investments. All three are part of good financial management.
All three have many advantages. Savings, as we know, are useful for current and future needs. The income saved can be used for daily expenses or sudden needs.
In the meantime, insurance makes sense to protect yourself against health costs. While investing can be used as long-term saving so the money you have doesn’t just run out. The gains from the investments you make can guarantee life in old age.