Thursday, August 8, 2013

Book "Home Finances for Couples". Extract from Chapter 5. "How to Manage Family Budget – Basic Technique"

I plan to publish my book "HOME FINANCES for COUPLES. 
Resolve Money Problems in Marriage and Learn Easy Steps to manage Family Budget"
on August 20th, 2013.

At this blog you can taste pieces that are ready. 

Here is the extract from Chapter 5. "Basic Technique - Expenses only".


“Don’t tell me where your priorities are. Show me where you spend your money, and I’ll tell you what they are.” — James W. Frick
Technique Description
The following would be a basic set of your accounts. 

Basic technique simplifies everything, so your major task is to record expenses on the cash basis.  Every time you pay an expense, a record is made in the system, such as the following:

Pros to a Basic Approach
The basic technique is perfect for beginners to form a habit. It gives you a taste and a feel for family-money management. Your first positive results of recording will inspire you to continue.
There’s no need to balance Homemoney system accounts with real Cash/Bank, Debt, Savings accounts, since it’s a very basic approach.

It also allows you to cut unnecessary spending and stimulates saving.  The visuals will cause you to reflect on your expenses.

 Examples of good questions to ask:

  • a.       Why do we spend on category X so much?
  • b.      Shouldn’t the Fun category be less than the percentage of all expenses?
  • c.       Is there anything we can do to increase tax deductions and pay less tax?
  • d.      Can we afford a second car since the monthly car expense is Y?
  • e.       How much are we going to save per month, if we start bringing lunch from home? Is it worth it?
  • f.       We spend on Z amount on Kids, which is % of all expenses—how is that aligned with our shared financial goals?
  • g.      Where does unnecessary spending come from so that we can cut it to save more?
 With this system, you can always clearly see:

  • a.       How much debt you repaid over the period
  • b.      The amount of saved money during the period
 Cons to a Basic Approach

While a basic approach is very simple, one major disadvantage is easily noticed: It does not show the big picture.

Another drawback is that you can’t actually check yourself. Since you are not balancing accounts, if you miss recording some expense, it’s gone forever.

Also, you can’t calculate Net assets of your family.

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