Don’t confuse family financial control with a penny-pinching budget. The purpose of control is to look ahead, to use many dollars that might be wasted. You can also master how to run personal finances.
Adapt two corporate tools: A cost-accounting system and a balance sheet.
Cost accounting controls spending by establishing yearly budgets. Base the budgets on past spending patterns and anticipated changes in costs, procedures, goals, and other factors. Purpose: Better financial planning.
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Don’t track each expenditure down to the last penny. Look back only to get a better perspective on the future. Main guide: A projected 12-month budget.
Recommendations
Every month, compare actual expenses with the planned amount.
- Note deviations.
- Change your spending pattern or your program.
- Implementing budget control requires the cooperation of all family members. Steps to take:
- Set realistic short-and long-term objectives. Estimate the sums you have set to aside regularly to achieve your goals.
Estimate income for the year. Include savings interest, stock dividends, pensions, and money from all other sources. When income is irregular, as may be the case for sales and professional people, estimate a yearly minimum. Divide the total into equal parts over selected budget periods (weekly, semimonthly, or monthly).
Spread fixed expenses
Total the year’s periodic bills (taxes, rent or mortgage payments, utilities and heating fuel, insurance, association or union dues, installment loans and purchases, tuition, etc.). Divide that sum by the number of budget periods. Purpose: To eliminate the diversion of needed cash and last-minute scrambles to pay large bills that should have been anticipated.
Estimate flexible expenses
Prime ones are clothing, furniture, equipment, charities, medical care, gifts, and entertainment. Include an emergency fund to make up for wrong guesses on costs. Spread the total evenly over the budget periods.
Estimate regular living expenses
Among these are personal allowances, food, household supplies and help, laundry, dry cleaning, automobile maintenance and other transportation, newspapers and magazines, postage, and entertainment. To make a reliable estimate, record actual expenses for several weeks or longer.
Plan to pay old bills
Include loans from friends or relatives, as well as installment debts. They should be spread, where possible, over future budget periods. Pay them as quickly as feasible to maintain good credit, and good family and social relations.
Prepare a tentative budget
Match total expense (about the same for each budget period) against income.
How to use the program
Treat a surplus of income over expenses as saving toward meeting future goals. If the surplus is tiny, or if it is a deficit, trim expenses. It may be necessary to temporarily increase income by seeking extra work. Each family member should help develop cost-cutting or income-producing ideas.
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Children may take on chores that had been done by hired help. Even some fixed expenses can be trimmed temporarily.
Bottom line
Once you establish a cost-accounting system, keep it flexible to allow for changes in financial status, family size, attitudes, or interests. The balance sheet shows net worth, the value of all assets fewer liabilities. Purpose: Year-to-year comparisons of balance sheets mark your family’s economic progress.
A satisfactory rate of growth is not necessarily enough. Make certain that the growth in specific assets applicable to your overall goals is adequate to achieve them. We wrote about family financial reviews in the past.
Time saver
Banks generally use balance sheet forms to measure the financial substance of potential borrowers. Your local bank may be willing to give you a few blank forms for your personal use.
