Breaking the Family Bank?—What You Need to Know to Stay Within Your Budget

July 2015 View more

NMAG0715_Finance_iStock_000037468638_Full_800pxLiving paycheck to paycheck isn’t a phenomenon reserved for families in lower socio-economic strata anymore. Studies and surveys alike, have found that today’s families are accumulating more credit card debt, spending at or above their means, and saving less money. Ken Cady, a financial planner and first vice president with Wintrust Wealth Management, a Naperville Bank and Trust affiliate, identifies the pitfalls to avoid and good habits to put into place to improve your family’s financial health and avoid busting the budget.

Pay Yourself First

Read any article about personal finance and one of the first suggestions will be to “pay yourself first.” The reason it’s such a popular and repeated recommendation is that because so many of us don’t do it. “People go out to dinner and make sure the wait staff, the valet and anyone else providing a service gets their tip,” said Cady. “At the same time, they haven’t put money in their own savings account to pay themselves.”

Savings First

Most couples have multiple bank accounts, including at least one checking and one savings account. Cady suggests that, instead of making direct deposits from employers into your checking account, have them wired to your savings account. Based on your monthly budget, determine how much you’ll need to transfer from savings to checking each month. “The goal is to have a surplus at the end of the month that stays in savings,” Cady points out. That surplus should be subtracted from your monthly transfer from savings. The result is more money in your savings account that accumulates automatically. In addition, transferring a specific amount from savings to checking will assist in calculating how much, if any, you go over budget so you can either increase your monthly transfer or curtail expenses.

Be a Bean Counter

Start with maintaining a budget. Every family should have a basic monthly household budget, according to Cady, and they should stick to it, as hard as that can be especially for a family. For professionals, eating lunch out is a part of doing business. Try to set a per diem for lunch, even if you don’t have to report it to your company. This will help estimate how much you’ll spend on lunches weekly and monthly. Bundled services, such as cable, phone and Internet is another problem area Cady identified. He recommends reviewing your bill monthly to make sure you aren’t paying for services you don’t use or need.

Create a Spending Threshold

If both spouses have debit cards that pull from the same account, neither may know what the other is spending until the end of the month. Consider discussing with your spouse how much either of you can spend without having to talk to each other about it first and create a realistic discretionary spending line item in your household budget.

Avoid Credit Card Debt

When you consider that the average outstanding credit card debt is more than $15,000 and the average U.S. family has just under $4,000 in their savings accounts, it’s no wonder credit card debt is a budget buster. In fact, it’s the leading cause of bankruptcy in the United States. Cady recommends minimizing credit card purchases as much as possible unless you are committed to paying the balance every month. “Too many Americans are carrying large amounts of credit card debt, paying the minimum balance every month and racking up huge interest charges,” said Cady. Granted, some credit cards offer points, but those points will be overshadowed by looming debt.