A budget will only work if all family members are on board. But it doesn’t need to be a negative experience. Having the whole family involved in budgeting at some level not only helps them stick to the plan, but it can also help to teach your kids about money — by setting financial goals and making trade-offs to reach them. It can be a way to work together to get excited about what your money can help you do.
“Having the whole family involved in the budgeting process is a great idea. Most importantly, I believe that the entire family should be included in defining the family financial goals,” said Damara Parra, supervising financial counselor with the New York City Financial Empowerment Center, which provides free one-on-one financial counseling to people of all income levels. “We ought to remember that a budget is a tool not to track money, but to accomplish one’s goals. Teenage kids will be more open to participating in the process if parents explain to them what’s in it for them. A parent can include a small fund for camp expenses, school uniforms, college fund or other items that their kids will need or enjoy.”
How To Get Started With a Family Budget
Rather than itemizing every expense and then cutting back, Parra recommends starting by discussing the family’s long-term and short-term financial goals.
“In my opinion, clients should not wait until they track their expenses to develop a budget. They should create a preliminary budget listing all the expenses they remember having the last month, adjust some of their variable expenses to fit in their new financial goals, and then track their expenses for the next four weeks to see how they did,” she said. “This will allow them not only to decide where they spend their money, but to also feel comfortable with the trade-offs they make even if they affect the time in which they can accomplish their goals. This makes the goal more personal and there is more accountability with all the parties involved. It is also important to keep on top of the changes and be honest with each other.”
Having teenagers track their spending for a week can be enlightening. “I believe bringing children of all ages into the family budgeting process instills valuable lessons they can and will carry with them as they grow into adulthood,” said Alissa Van Volkom, head of U.S. consumer deposits, products and payments for T.D. Bank. “You can make it a family activity by sitting down and reviewing expenses together to help give everyone a clearer image of what your family’s goals are and how you plan to meet them. Differentiating between ‘needs’ and ‘wants’ teaches the important concept of prioritization and what constitutes a smart purchase, depending on the situation.”
The Importance of Financial Communication
You don’t have to track expenses forever, but it is important to keep the financial communication open after the initial review. “It is very important that a family stay on the same page when it comes to finances. Everyone should play a part in helping maintain the family’s financial house just like their real one,” said Ashley Foster, a certified financial planner with Nxt:Gen Financial Planning in Houston. “Being open and transparent with your kids, while asking them to engage in important family decisions, can better prepare them for their future as adults who will be faced with the same challenges.”
You can involve kids at some level even when they’re young. “One common mistake that parents make is waiting until children reach a certain age to start teaching the value of saving,” said Ravi Kumar, senior vice president and head of CIT’s Direct Bank. “Parents can instill healthy financial habits at any age by using easy-to-understand concepts like goals and rewards.”
Van Volkom recommends having young kids help save for a fun family goal. “While budgeting for necessities should be the family priority, setting aside a special fund for family activities can be just as valuable,” she said. “Even things as simple as a change jar in the kitchen where everyone contributes for a family movie or ice cream night can make budgeting an exciting activity for everyone involved. Getting the whole family invested in saving money is the best way to ensure a financially literate future.”
And don’t forget to review your plans every few months. “Your family’s budget is not a ‘set it and forget it’ item,” Kumar said. “You need to regularly check in to see how you’re tracking toward your goals, especially as your priorities and financial circumstances change, like getting a raise, buying a home or deciding to have another child. Achieving the goals you’ve set is a continuous process. Keep moving forward by revisiting your budget every so often and making changes as needed.”
Budgeting Lessons From COVID-19
Many families discovered the importance of budgeting after the financial challenges of COVID-19. When everything was shut down and many people lost their jobs, it forced them to start from scratch with their budget and reassess what was really important to them. “I think the pandemic brought up the importance of prioritizing our needs vs our wants and that having an emergency fund, even if small, really helps,” Parra said.
Without an opportunity to spend money on commuting, eating out or entertainment, it became obvious how quickly those costs could add up — and how much you could save by being intentional with those expenses as you resume your regular schedule. “When we get back to normal, I hope we continue with the notion that being frugal is a positive thing and that it actually helps people accomplish better and bigger goals,” Parra said. “Another lesson to continue is understanding how important it is to know where your money is going, and that budgeting allows people to be in control and plan for the future.”
Van Volkom hopes that more families will continue with the financial focus that was forced on them during COVID-19. “With more time spent at home, and financial stress on the rise, people started talking about their finances more openly, learning to budget for necessities and navigating financial uncertainty together,” she said. “The best thing families can do as they return to their regular lives is to maintain the open line of financial communication they created during COVID.”
